922 HARVARD LAW REVIEW justify state taxation indirectly on those bonds? The best answer seems to be that their exemption from direct taxation is not only protection against a burden but also the grant of a bounty. The two cannot be separated. The states, therefore, are required to lend positive aid to the federal borrowing power at considerable sacrifice to themselves. This aid is given to the entire market afforded by individual investors. Such aid may well be credited to the states against any charge that full taxation of corporate shares and franchises deprives the federal government to some extent of the advantages due to its superior credit by making cor- porations less ready to sacrifice security for income. It is obvious that the deleterious effect on the federal borrowing power which may possibly ensue from state taxation on the capital value of all stocks and bonds will not follow from state levies on all net income. A two-per-cent tax on the capital value of two $i,ooo bonds both selling at par, one issued by the government and paying $30 annually, and the other issued by a private corporation and paying $60 annually, will reduce their net yield to $10 and $40 re- spectively. The tax takes two-thirds of the income from the govern- ment bond and only one-third of the income from the corporation bond. On the other hand a thirty-per-cent tax on the income from the bonds would reduce their net yield to $21 and $42 respectively, leaving the ratio between them the same as when both are exempt. It might therefore be urged that the states should be allowed to include income from federal securities in a general income tax. Such a tax can be called one "upon the person for the general ad- vantages of living in the jurisdiction," ^ or "but a method of dis- tributing the cost of government," ^ or some of the other names that have been found convenient in sustaining taxes. Its effect on the ' federal borrowing power may be declared "indirect and remote," like the effect on exportation of a tax on net income from an exporting business.^^ It would not, it is conceived, place the federal borrowing power under any disadvantages that it would not labor under if all intangibles were entirely exempted from any form of taxation, " Mr. Justice Holmes, in Fidelity & Columbia Trust Co. v. Louisville, 245 U. S. 54, 58, 38 Sup. Ct. Rep. 40 (1917), 32 Harv. L. Rev. 655. " Mr. Justice Pitney in United States Glue Co. v. Oak Creek, 247 U. S. 321, 329, 38 Sup. Ct. Rep. 499 (1918), 32 Harv. L. Rev. 636. " See Mr. Justice Van Devanter in Peck & Co. v. Lowe, 247 U. S. 165, 174-75, 38 Sup. Ct. Rep. 432 (1918), 32 Harv. L. Rev. 639.
