The Pittsburgh Press (September 10, 1946)
Background of news –
Exit, with a thud
By Bertram Benedict
What stocks do in the next several days ought to show whether or not the recent pessimism in Wall Street has run its course or will remain with us.
Liquidation on the eve of the three-day holiday over the Labor Day weekend had been expected to dry up selling offers, but the day after Labor Day saw the sharpest price break since 1930.
Losses ran up to 17 points in duPont, and the Dow Jones composite index of 30 industrial stocks showed a drop of over 10½ points on that one day. And the market had been falling for some days previously.
Investors as well as speculators for the rise may find one silver lining in the collapse of security prices. As a result of the prepayment income-tax plan adopted in 1943, their income tax for last year already is paid in full. And their tax for one-half of this year also is paid – if not in full, at least to a considerable extent.
Indeed, some of the selling of securities now may be due to need of getting funds for the quarterly income-tax instalment due the coming September 15 on this year’s tax.
Little windfalls possible
As a matter of fact, the collapse of the post-World War II bull market may result in little windfalls to some income taxpayers in 1947.
A great many taxpayers have estimated their income for this year as the same as last year’s income. If losses from the sale of securities, or even a failure to equal last year’s gains from sale of securities should make their estimates too high, they will be entitled to refunds next year because of overpayment this year.
But there is little of a silver lining for the Treasury in the drop of stock prices. Many incomes this year will be lower than had been expected, so that income tax collections will be lower than had been anticipated.
The Budget Bureau doesn’t make public the bases on which it estimates future income tax collections, but in making its estimates of Treasury revenues for the fiscal year 1947, the bureau hardly could have allowed for losses on stocks so severe as those suffered in the past few days.
Gains and losses
The income tax makes a distinction between gains and losses from the sales of capital assets, including securities. Any total capital gain must be added to ordinary net income. But any total capital loss may be deducted (1) only to offset capital net gains and (2) if any capital net loss still remains, up to an additional $1000.
Also, any surplus of capital net loss over capital net gain – that is, a net deficit from capital assets transactions in any one year – may be carried forward for five additional years, to offset any capital net gains in those years, and if any capital net loss still remains, up to an additional $1000 a year.
Gains or losses from sale of assets held for six months or less (“short-term”) must be fully considered in the income-tax return, those in assets held for more than six months (“long-term”), only up to 50 percent. The maximum tax on the long-term net capital gains is 50 percent, making the maximum effective tax 25 percent on such gains.