Net income

“ The fact is that the net income is less than a fair interest on the actual cost of the roads, and perhaps not one per cent. on the nominal value as shown by capitalization. A road has cost five millions; the nominal value is twenty millions; the net income is six per cent. on four millions. Take out a dozen corporations which are wholesomely managed, and the rest of the companies are, in varying degrees, bankrupt as to their nominal capitals and unprofitable as to their actual cost. ”

“ Figure 9 gives gives the same result but then as a net income plot. The horizontal axis gives income, the vertical axis net income. The tax is given by the difference between net income and the 45-degrees line. Subsistence now is a horizontal line at B. The intersection of the B-line and the net income line gives the minimum wage M. You must earn at least M to satisfy the minimum net income requirement B.
Figure 9: Net income plot
The Tax Void Let us now combine the earnings distribution and the tax plot. ”

“ In common language the word income applies to money received from any source. It may be qualified as gross income and net income. It may be limited by words defining the source of the income, as, from land, merchandise or banking, but, in its general sense, it means gross savings from all sources. When received in money it is an income and not until then. ”

“ Thus, assuming that income in the popular sense corresponds to my net income, aggregate investment in the popular sense coincides with my definition of net investment, namely the net addition to all kinds of capital equipment, after allowing for those changes in the value of the old capital equipment which are taken into account in reckoning net income. ”

“ The rate of exaction imposed by the excess profits tax grows, in stages, with the increase in the percentage earned on the capital. In the first stage-net income up to 15 per cent. on capital-the rate of exaction is four-twentieths. In the second stage-net income from 15 to 20 per cent.-the rate is five-twentieths. In the third stage-net income from 20 to 25 per cent.-the rate is seven-twentieths. In the fourth stage-net income from 25 to 33 per cent.-the rate is nine-twentieths. ”

“ An individual’s entire income is derived from ten houses each worth $10,000 and each yielding 10 per cent net income. If two of these houses burn down, uninsured, the common sense view is that the proprietor’s income is thereby cut down from $10,000 to $8,000 per annum, and that coincidentally, there is a loss of capital of $20,000. It never occurs to him that he must consider his income as entirely cut off for two years until the principal can be restored. ”

“ In the first place, an interpretation of net income, by which it is also a net loss, involves the reading of the words of the statute in a strained and unnatural sense. The metamorphosis is too great to be viewed without a shock. Certainly the average man suffering a net loss from the operations of his business would learn with surprise that, within the meaning of the Congress, the amount of his net loss was also the amount of his net income. ”

“ Section 212 (b) provides that the net income shall be computed 'in accordance with the method of accounting regularly employed in keeping the books of such taxpayer,' unless the method employed does not clearly reflect the net income. ”

“ It is no answer to say that as between one business and another, or even as between one person and another engaged in the same business, there will be varying rates of return upon the amount of the investment. This is true also of a tax on net income. ”

“ In determining the amount of earnings or profits (whether of the taxable year, or accumulated prior to March 1, 1913) due consideration must be given to the facts, and, while mere bookkeeping entries increasing or decreasing surplus will not be conclusive, the amount of the earnings or profits in any case will be dependent upon the method of accounting properly employed in computing net income. ”

“ But if the constantly recurring necessity to do reconstruction or replacement work was in 1907 met out of the current income of that year, thereby diminishing the net income, the fact should be given weight in estimating future net income ”

“ Thus, if the income of the company is to be taken by the appraising engineers, or the gross income, it may have to be given a different interpretation from the net income, and 252if the surplus earnings depend on transient causes or on excessive rates for service it will lead to a totally erroneous conclusion. ”

“ United States.—Greater natural resources here give a greater gross and net income, with equal labor. I am inclined to put our gross income between $6 and $7,000,000,000. I do not believe our annual saving, in prosperous years, in excess of five per cent., or from $300 to $400,000,000. ”

“ To an individual, with a capital of 20,000l., whose profits were 2000l. per annum, it would be a matter quite indifferent, whether his capital would employ a hundred, or a thousand men, whether the commodity produced sold for 10,000l., or for 20,000l., provided, in all cases, his profits were not diminished below 2000l. Is not the real interest of the nation similar? Provided its net real income, its rent and profits be the same, it is of no importance whether the nation consists of ten or of twelve millions of inhabitants. ”

“ Variable capital, v, is the annual wages bill. Surplus, s, is annual rent, interest, and net profit, so that v + s represents net national income. (In this introduction surplus is used interchangeably with rent, interest and net profit.) Constant capital, c, represents at the same time the contribution which materials and capital equipment make to annual output, and the cost of maintaining the stock of physical capital in existence at the beginning of the year. ”

“ It seems as if we can take the formulas and graphs of the statics case, and compare real incomes regardless of the time. However, in dynamics, ‘minimum income’ is not just ‘income’ but is a mechanism. The concept of M is that it picks out one income as the minimum, but it can pick that income at a different rate of growth depending upon the mechanism. The interaction between indexation, net subsistence, the tax parameters cause a multiplier effect. ”

“ The net difference between the income and the cost of securing the income, as indicated by the expense accounts, will represent the value added to the assets of the business, and will therefore be reflected tangibly in an increase in the value of the assets by that amount. This increase will usually be reflected either in the cash holdings or in claims against customers. ”

“ A small portion of the American people are in receipt of incomes that necessitate a report to the revenue officers. Among those persons, a small number are in receipt of incomes that might be termed large—incomes of $10,000 or over, for example. Among these persons with large incomes the majority of the income is secured in the form of rent, interest, dividends and profits. The higher the income group, the larger is the percentage of the income that comes from property holdings. ”

“ The market wage of our industry is paid to Labor and a minimum of 6% is paid to Capital. After these have been paid, together with regular operating expenses, depreciation reserve, taxes, etc., and after the Sinking Funds have been provided for by setting aside 15% of the next profits for Labor and 15% for Capital, the remaining net profits are divided 50% for Capital and 50% for the operatives, and the latter sum divided in proportion to the amount of each one's pay for the period.... A true partnership must jointly provide for losses as well as for the sharing of profits.... ”

“ This continuous allocation to Rent of shares of Labor-produced Wealth may—it constantly does—take88 on Capitalized forms. As Wealth is produced it flows toward the productive factors in two distinct and continuous streams—Wages for Labor and Rent for Land. But as Land has in business custom the rank of a commodity, the legal right of its owners to appropriate Rent assumes the form of Capitalized Land Value. An annual income from Rent, for example, be that income actual or only potential, may be bought and sold in business intercourse for a Capital sum or “purchase money.” ”

“ Modern society lays its emphasis on possession and accumulation, and upon the wealth and power which they yield. The owner of land or of capital, under the present economic order, is not required to work for his living. His rents and dividends furnish him a source of income far more regular and much more dependable than the wage of the worker, or even than the salary of the man higher up. The rewards of the property owner, moreover, are far larger than those of the worker. Compare the income tax returns of Germany, Britain and the United States with the wage scales from the same countries. ”

“ No language could be more comprehensive. It embraces income of every description, whether derived from labor or property, and it particularly mentions income derived from interest and dividends, adding the words, 'or from any source whatever.' It is not to be doubted that it includes income derived from dividends on stock held in railroad companies, and income received as interest on bonds of such companies. This section, I think, is the only one that imposes any income tax. ”

“ Under this class the following income was taxed: income derived from all those trades and occupations which are subject to a license tax; the income of mining and smelting establishments, and the profit made by the tenants of agricultural lands. In the second class, which includes income from services rendered or labor performed in occupations not subject to a license tax, the rate reported is exceptionally high. Under the third class, which embraces interests from loans, from invested capital, savings banks, and life-insurance companies, the rate is reported to be ten per cent. ”

“ To test the question as to whether there has been any disproportionate increase of capital, and of the income from it, in yet another way, I have endeavored to make an analysis of the income-tax returns themselves, distinguishing in them what appears to be the income of idle capital from income which is derived not so much from the capital itself as from the labor bestowed in using the capital. ”

“ It may own stocks and bonds from which income may be derived. In a manufacturing or mining enterprise the company may own dwelling houses and rent them to its employees. Conditions of travel and communication may also force it to provide stores, places of amusement, and so forth for its workers. From all these supplementary activities it will derive income. As it was not organized primarily for these purposes, but chiefly to manufacture, or mine a commodity, the income from these collateral activities is classed as non-operating income. ”

“ The net output thus obtained is obviously for each industry the only fund from which first, wages, salaries, interest on capital, rent, royalties and profits are, or can be, paid, and secondly, taxes, rates, depreciation, advertisement and sales expenses. ”

“ Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property ”

“ The amount of all expenses, Including interest and salaries, is ascertained, and the total net profits shall be divided between the firm and the employés sharing in the fund. The amount of the net profit to be distributed will be that proportion of the whole net profit which will correspond to the proportion of the wages paid as compared with the entire cost of production and the expense of the business. ”

“ The least favorable view which can be taken of them is, that of considering them a capital, yielding, at present, an income of three millions of dollars annually. Assuming the ordinary rate of six per centum interest per annum as the standard, to ascertain the amount of that capital, it would be fifty millions of dollars. But this income has been progressively increasing. ”

“ Accordingly, corporations oftentimes spend large sums in so-called social betterment work, and it is customary for the corporation to charge a fair rental on workmen’s dwellings. The expense in connection with such work is to be treated rather as an item of extraordinary expense just as the income from the corporation’s investment in workmen’s dwellings must be treated as income outside the regular operations of the business. The problem here is simply the determination of the proper place to show the items of expense and income in the profit and loss summary for the period. ”

“ How a Family Saved $100 on a Salary of $700.
Economy is quite as large a factor as industry in the gaining of a fortune. With people living on small incomes, it is often the one element that determines whether they “make both ends meet,” or run in debt and ultimately fail. The following example shows how one family, whose income was only $700 a year, actually saved $100. Mr. ——, of ——, found himself getting behind in money matters, and determined to practice rigid economy. ”

“ There ought normally to be a gradual increase in the proportion of the national income accruing to labor, for as production increases by virtue of improvements in methods, the share of capital being limited by competition, there becomes available a greater dividend for the wage earners ”

“ We shall keep profits completely separated from the wages of any kind of labor and from the interest on any kind of capital. This income falls to the entrepreneur, otherwise called the undertaker, or the employer and coördinator of labor and capital, and it comes only when the product of the operations carried on in his establishment exceeds all wages and all interest that he has to pay. ”

“ Why does another wish to purchase this same land? it is to employ a capital which brings him in too little, which was unemployed, or the use of which he thinks susceptible of improvement. This exchange will increase the general income, since it increases the income of these parties. But if the charges are so exorbitant as to prevent the exchange, they are an obstacle to this increase of the general income. ”