Therefore, it pays to be honest.
Yes; but I apprehend the rate of discount is always affected by it, because those who buy securities buy them from somebody who previously held them, and who after the sale has the price of them instead, and he has probably sold his securities because he intends to make use of the price in a more profitable manner than the securities afford. This, at such a time, he would be best able to do by employing the money in discounts. Or he perhaps uses it to pay a debt of his own, and in that case the person to whom he pays the debt is probably a monied man, and employs it in discounts.
I do think that it pays when in doubt, choose honesty.
They make a difference in the question of imposing an income tax at all, and except in a case of absolute necessity, and as an extraordinary resource, I should be decidedly against it; but if there is to be an income tax, the frauds make, in my estimation, no difference in the reasons for reduction: because in the first place if you were to refuse the reduction on this ground, it would be punishing the honest man for what the rogues do; because if you announce that you must tax people in a higher ratio, because they defraud the revenue; if in fixing their taxation you assume that they are going to evade a part of it, you in fact license them for doing it.
This distinction, however, between the relation of the capitalist to his capital, and his relation to his income, is wholly imaginary. He starts at the commencement with the whole of his accumulated means, all of which is potentially capital: and out of this he advances his personal and family expenses, exactly as he advances the wages of his labourers. He of course intends to pay back the advance out of his profits when he receives them; and he does pay it back day by day, as he does all the rest of his advances; for it needs scarcely be observed that his profit is made as his transactions go on, and not at Christmas or Midsummer, when he balances his books. His own income, then, so far as it is used and expended, is advanced from his capital and replaced from the returns, with the wages he pays. If we choose to call the whole of what he possesses applicable to the payment of wages, the wages-fund, that fund is co-extensive with the whole proceeds of his business, after keeping up his machinery, buildings and materials, and feeding his family; and it is expended jointly upon himself and his labourers. The less he expends on the one, the more may be expended on the other, and The price of labour, instead of being determined by the division of the proceeds between the employer and the labourers, determines it. If he gets his labour cheaper, he can afford to spend more upon himself. If he has to pay more for labour, the additional payment comes out of his own income; perhaps from the part which he would have saved and added to capital, thus anticipating his voluntary economy by a compulsory one; perhaps from what he would have expended on his private wants or pleasures. There is no law of nature making it inherently impossible for wages to rise to the point of absorbing not only the funds which he had intended to devote to carrying on his business, but the whole of what he allows for his private expenses, beyond the necessaries of life. The real limit to the rise is the practical consideration, how much would ruin him, or drive him to abandon the business: not the inexorable limits of the wages-fund.
~Henry Louis Mencken, Honesty pays, but it don't.
Certainly much better than the present system. But in order to do complete justice, it seems to me, though it is not a principle generally recognised, that the income tax ought to exempt all that portion of income which is saved. I express this opinion not solely on grounds of policy or expediency, with a view to encourage savings, but as a simple question of arithmetic. If that portion of income which is laid by is charged with income tax, it pays the income tax twice; first on the capital, and then on the interest derived from it. For instance, suppose that in one year I save 100 if I did not save that 100 I should have to pay 3 to the State, which would leave me 97 to expend on luxuries or indulgences: but if, instead of spending, I save the 100 I should not save it to lock it up, but to invest it; and I should immediately begin to pay income tax on the income derived from it, which would be equivalent to paying the tax on the 100 If I spend the 100 I pay 3 to the State, and have 97 for my own use; if I save it, I pay 3 to the State, which reduces my future income from it in the same proportion, and I also pay three per cent. on this diminished income; so that, in reality, I pay the income tax twice, first on the capital, and then on the interest. This could only be just, on the supposition that I had the use and benefit both of the capital and of the income; but I have not. If I have the use of the capital I derive no income from it; and if I have the income, it is because I abstain from using the capital.