federal tax., As long as New York is surrounded by commonwealths which seek to attract to themselves much of the wealth of their rival, it is unreasonable to expect a development of interstate comity in taxation which would redound to their disadvantage. Such an interstate comity can probably be forced upon the American commonwealths only from above; and it is a debatable question whether the national government has the constitutional power to do this. At all events, for New York State to act independently in this matter would be, in our opinion, highly inexpedient.

"We, therefore, conclude that any form of state income tax is at present inadvisable. Some of the undersigned were years ago in favor of such a scheme, but a closer acquaintance with the administrative and economic conditions of American life has forced them to the conclusion that a state income tax would be a failure. The project is beautiful in fiscal theory, but useless in actual practice. . . .

"Whatever may be the situation in future years, your Commissioners are convinced that to advance the project of a direct state income tax at the present time is an iridescent dream. The scheme might succeed in bringing in some revenue, but it would, in our opinion, be sure to bring in its train inequality, fraud and corruption. Far from being a remedy for our present evils it would only accentuate those evils.

"It is for these reasons that we consider the imposition at the present time of a direct state income tax inexpedient and inadvisable."

§ 6. Conclusion

In the face of the contentions reproduced in the last section it would seem reasonably certain that whatever may be the future of the income tax in the United States, it has no prospects as a state income tax. In this conclusion almost all serious students agree. Mr. Kinsman, the author of a special study on the subject, maintains that "the experience of the states with the income tax warrants the conclusion that

the tax, as employed by them, has been unquestionably a failure;" and he adds that "a careful study of the history of the tax leads one to the conclusion that the failure has been due to the administration of the laws. The causes operating to produce this failure in administration appear to have been four: the laws themselves have been defective in the provisions for their own administration; the officials have been lax in the enforcement of the laws; the taxpayers have been persistent in evading them; and the nature of some incomes has made them especially difficult to reach."2 His conclusion is that "the tax cannot be successful so long as taxpayers desirous of evading taxation are given the right of self-assessment. Since all attempts to change the method of self-assessment have failed, and the nature of industry in the United States is at present such as to make impossible the assessment of a general income tax at the source, we are forced to the conclusion that even though no constitutional question should arise, failure will continue to accompany the tax until our industrial system takes on such form as to make possible the use of some method other than self-assessment."

While all the defects mentioned by Mr. Kinsman are undeniably true he does not, in our opinion, touch the real difficulty of the situation. Even though the objections upon which he lays the chief stress were removed, and the use of some other method than self-assessment were introduced, the income tax would still be impracticable as a state tax. For it is not so much the method of assessment as the impossibility of localizing income which will continue to make the income tax unworkable for state or local purposes. This is the point that is generally overlooked by the few advocates of a state income tax that we still find.

When at the first national conference on state and local taxation in 1907 some enthusiast recommended a state income tax as a way out of the difficulties connected with the state taxation of personal property, the point was clearly put by a representative from the state of Washington: "I think we 1 Op. cit., p. 116. 8 Op. cit., p. 121.

2

Op. cit., p. 117.

will all agree that the income tax would be a correct measure of taxation; but I should also like to ask the gentleman to outline his plan of machinery to put the income tax into operation. I have thought about it a great deal; I have tried to plan out machinery for its operation, and I have not been able to devise the first wheel of a machine to put it into successful operation. If any gentleman here has evolved any plan I should greatly like to hear of it."1 No one was able to help him; and another speaker, Dr. Millis, agreed that "state and local income taxes are not at present practicable measures.' "2 At the third conference the scholar who had originally been in favor of a state income tax declared his conversion to a federal income tax. At the fourth conference attention was called to the fact that a constitutional amendment had been adopted in Wisconsin permitting the legislature to enact an income tax, and Professor T. S. Adams read a paper in favor of such a scheme. When reduced to the last analysis, however, his argument was that an income tax could succeed as a state tax, provided that the whole system of fiscal administration be revolutionized. But this is precisely what is not to be expected. If the tax on personal property is a farce because of bad administration, how can any one confidently assume that the mere imposition of an income tax would bring with it a revolution in administration. If the adminis

1 State and Local Taxation. First National Conference, under the Auspices of the National Tax Conference. Addresses and Proceedings. New York, 1908, Pp. 261-262.

2 Ibid., p. 445.

Professor Raper of North Carolina. Cf. State and Local Taxation. Third International Conference, under the Auspices of the International Tax Association. Addresses and Proceedings. Columbus, 1910, p. 243.

4 State and Local Taxation. Fourth International Conference, under the Auspices of the International Tax Association. Addresses and Proceedings. Columbus, 1911, pp. 87 et seq.

5"It could be made perfectly apparent to them [the people of Wisconsin] that an income tax without reconstruction of the assessment machinery would be an absurdity. I believe that in order to get the income tax they would consent to reorganize the machinery of assessment.". Op. cit., p. 95. Austria and Italy also "consented to reorganize the machinery of assessment," and we know the results!

tration can be revolutionized, let us apply the revolution to our present methods. We should rather concur in the opinion of the Wisconsin Tax Commission that "it does not seem reasonable to expect any better enforcement of the income tax than of the general property tax, left to local enforcement. . . The experience with the income tax in the United States has not been such as to commend it under the practice adopted for its enforcement."1 But even if the tax should be assessed by state officials rather than by local officials, the situation would not be materially different, as we have pointed out above. We can heartily indorse the conclusion of the commission that "Americans, in case of dissatisfaction with either the law or its administration, are prone to ask for further legislation, rather than for stricter enforcement, the new law again being left on the statute books to rest in sweet forgetfulness." As the experience of Switzerland has clearly shown, and as sound theory would in itself teach, an income tax is more difficult of administration than a personal-property tax, for the reason that personal property is in part, at least, tangible, while income is always necessarily intangible. Furthermore, to quote the example of the German state income taxes in support of an American state income tax is, as we have pointed out above, beside the mark, for in Germany there exists an imperial law governing the whole subject of interstate double taxation which it would be hopeless to expect in this country.

3

A state income tax, therefore, would work just as badly as, and in our opinion even more badly than, the present personal-property tax. The real difficulty in the one case as in the other is not with administrative methods, but with the inherent impossibility of localizing personalty or income. The history of Great Britain has shown us the fatuity of a local income tax; the experience of Switzerland has shown us the futility of a state income tax. In a country like the United States, where the basis of economic life has become national, and where the 1 Fourth Biennial Report of Wisconsin Tax Commission. Madison, 1909, P. 17. 2 Supra, p. 362. Supra, p. 270.

8

income of taxpayers has almost universally far transcended state lines, any attempt to construct a successful state income tax is well-nigh hopeless. To elaborate any form of income tax in the United States is, as we shall see in the succeeding chapters, difficult enough; to multiply these difficulties needlessly and to make a hard task doubly hard would indeed be the reverse of wisdom. Whatever may be the future of tax reform in the American commonwealths, it is not likely that an income tax will be one of its permanent features. In the agricultural states, an income tax is not apt to succeed, because farmers' incomes are proverbially refractory; in the developed industrial states an income tax is not apt to succeed because of the national scope of large business incomes. Consequently, if an income tax is to be utilized at all in the United States, it must be as a national income tax. To a consideration of the national taxation of income we shall accordingly now address ourselves.