Abstract An expenditures tax may have definite merits; it seems clear, however, that while rich people spend more than poor ones do, they neither spend proportionately nor as much as they have the ability to spend. Such a tax is, therefore, not in conformity with the principles of progressive taxation and may result in inequitable tax burdens. For purposes of an income tax aimed to tax individuals according to their ability to pay, it would seem that any item of receipt that adds to tax paying ability is a fit item for income taxation and as such capital gains may properly be regarded as a source of income. The income tax on capital gains, which never has existed in England, should be abolished, or, if that be not possible, reduced to a small, uniform and definite per cent, as in the case of corporations so that when an individual invests his principal, with all the risks that are involved in any investment, he may have some assurance that he may be able to retain a reasonable portion of any profits made as a result of such investment. If capital gains are not considered part of income because they are not subject to capitalization, and only items subject to capitalization are considered items of true income, then it follows, as Irving Fisher maintains, that only spent income is true income. The income tax thus becomes an expenditure tax and the difficulties of such a the have been indicated.

Abstract Since the beginning of income-tax legislation in the United States, the concept of the annual accounting period has been accepted per se in the calculation of the income tax. But before entering into a fuller discussion of the concept of the annual accounting period, the article diverges to inquire into the government's aim in levying the tax. Is it to receive as great a yield as possible, or is it to burden each taxpayer equitably according to his ability to pay? If the former is the aim, then the government must be condemned because a much more successful and complete shakedown of the taxpayer is possible; but if the latter is the aim, then the government must be condemned because of the gross inequities that arise from the use of an annual accounting period. Significant to observe is that the use of the annual accounting period does not cause only the taxpayer to be the loser. For the use of such an arbitrary period is equally the cause of diminution in the size of the receipts to the State. The article presents illustrations of both classes of inequities.