The effect of income tax is one of the most serious economic subjects, because it directly touches the production of wealth. There is little objection to income tax for emergencies of war, because if merely nominal (1_d._ in the pound) during peace, the true amount taxable will be well known, and a sudden increase will be truly collected and will not have distinct economic effects if only used for a year or two. But treating direct tax on incomes as a large source of revenue has very important effects on a commercial nation. A tax as high as 1_s._ in the pound is practically a tax on all English enterprise as compared with foreign. If a mill can be run at Calais to produce non-dutiable articles, free of income tax on its dividends, while a mill at Dover pays 5 per cent. tax on its dividends, that constitutes a discrimination of 5 per cent. against the English manufacturer's capital. The outcome of the whole is that all shares of English companies will stand permanently at 5 per cent. lower value than the shares of foreign companies. Or in other words £4 interest will have to be paid by an English company for £95 raised by debenture, while the foreign company will raise £100 for the same interest. The immediate result is that investments will increasingly be made in foreign governments and companies, whose dividends are payable _abroad_, instead of in London. This is not merely an evasion of tax, but it is perfectly legal if the dividends are spent abroad. No one need pay tax on any cost of foreign travel or residence if they draw the money from foreign sources, and do not let it be trapped in London. Thus there will be an ever increasing demand for purely foreign investment, according to the amount of tax on the investments in England. If the proposal was carried out to tax all investments much higher as "unearned income," it would cripple all English manufacture for lack of the capital, which would be driven abroad to escape the tax. It might be thought that other governments will come into line, and tax equally with ours; but if they see their own commercial advantage they will be very loth to put this bar on English capital flowing into their land to gain freedom. Even if France and Germany did as we do, it might be well worth while for Monaco to become the financial centre of Europe by having no income tax on companies centred there. The recent De Beers decision illustrates this very clearly. A company with its work abroad, and its investors largely abroad, is taxed on all its income because it uses a few square yards of space in London as an office. Obviously it will not remain. London will no longer be the centre of commercial work of the world if 5 per cent. or perhaps 10 per cent. is the price to be paid by all who use it. No company will remain in England that is not fixed by its works being here, and all those who are fixed here will work at a permanent disadvantage compared to the foreigner. It