Economic significance of the undistributed profits tax

Fiscal purpose of the tax not in dispute. Arguments against it have to do with economic effects of the tax and appear to be preoccupied with incidental effects. More fundamental economic effects, which have largely been ignored, deserve careful consideration. Economic effects of "business savings" under pure competition contrasted with such effects under monopolistic conditions. Undistributed profits fail to stabilize dividends. Under monopolistic conditions, particularly, undistributed profits tend to destroy the free market for commercial funds and to cause the existence of an uncontrolled "invisible banking system." Investment of undivided profits in plant and equipment under monopolistic conditions tends to destroy the free long-term capital market and to produce maladjustment. The undistributed profits tax applied to large corporations promotes rather than impedes the efficient operation of democratic capitalism.