erate money, which had now begun seriously to depreciate, while the farmers, subject to the tax in kind, could not avail themselves of this advantage. Numerous meetings of protest accordingly were held in various places, especially in North Carolina. Some of the resolutions passed at these meetings were as follows:1 "The act of Congress, in secret session, without consulting with their constituents at home, taking from the hard laborers of the Confederacy one-tenth of the people's living, instead of taking back their own currency in tax, is unjust and tyrannical, and we solemnly protest against that act." At another meeting it was resolved "that we pledge ourselves to each other to resist, to the bitter end, any such monarchical tax, any such contempt to our state pay such a tax to a Virginia tithing man." In another place the tax was criticised as "unjust, tyrannical, and oppressive, and a relic of barbarism which alone is practised in the worst despotisms." Most of the resolutions contained a statement that "we are in favor of a just and equitable system of taxation, so that all classes may bear their burdens equally; we, are, therefore, opposed to the tithing system . . . discriminating against and taxing the labor and industry of the agricultural classes." - to It was largely owing to this discontent, as well as to the need of increased revenues, that the commissioner of taxes, in his report of November, 1863, suggested a decided increase in the income tax. "If necessary a tax of twenty-five per cent should be laid on incomes over $5000, and fifty per cent on all over $10,000, and fifty per cent on the profits of all joint stock companies and corporations, over and above a dividend of twenty-five per cent paid to their stockholders. This may be considered exorbitant, and capitalists may think it oppressive, but it is neither. Every man should be satisfied with a support for himself and family, and all he makes above that should be divided with his country. No man should desire to amass a fortune, or to increase his fortune, if he already has one, from the hard necessities of a bleeding 1 These quotations will be found in Schwab, op. cit., pp. 295–296. country. While three-fourths, perhaps, of the men of the Confederacy have dedicated their lives or fortunes, and in many instances, both, to their country's cause, the remaining fraction have no moral right to amass fortunes at their expense."1 Secretary Memminger, in his report, called attention to the report of the commissioner and adverted to the necessity of more revenue. He pointed out that the direct tax of 1861 had been collected in only three states, but that the new tax of 1863 "is now being rapidly collected. From present appearances the commissioner estimates its probable collections at $100,000,000 in money, and he reports that it is paid with general cheerfulness and alacrity." 3 The Secretary stated, however, that the novelty of many of the provisions of the law had given rise to serious questions. The protests against the income tax in kind continued, and Congress now endeavored to meet some of the objections by slight modifications. Thus on December 28, 1863, it was provided that the tax on sweet potatoes might be commuted by payment in money, and on January 30, 1864, a similar provision was adopted in the case of tobacco. With these and other slight modifications, however, the tax was continued by the general tax law of February 17, 1864, although an effort was made to meet the wishes of the secretary of the treasury and of the commissioner of taxes by levying new taxes on property and by making a decided increase in the income tax proper. This tax was now increased by ten per cent, raising the maximum rate to twenty-five per cent, and a similarly augmented rate was applied to the profits of all joint stock companies, whether incorporated or not, exceeding twenty-five per cent. 1 Report of the Commissioner of Taxes accompanying the Report of the Secre tary of the Treasury. Richmond, 1863, p. 2. Cf. Kennan, Income Taxation. Milwaukee, 1910, p. 271. Memminger, op. cit., p. 466. 8 Op. cit., p. 473. 4 An act to levy additional Taxes for the Common Defence and Support of the Government. Chap. lxiv. In Public Laws of the Confederate States of America passed at the Fourth Session of the First Congress, 1863-1864. Edited by James M. Matthews. Richmond, 1864, p. 209. This was the last of the income tax acts of the Confederacy. In his report of May 2, 1864, Secretary Memminger discussed the situation. He pointed out that about the only revenue that the government could expect during the coming year was from the tax in kind. "The planting interest, whenever it is beyond the reach of the enemy, is prosperous and can contribute to the public wants as largely as any other." But he stated that under the administration of the tax "the prosperous are favored with a discount, while the unfortunate whose farms have been desolated, are required to pay upon the value of their capital, without any relief from crops." 1 The secretary also called attention to the discrimination arising from the fact that whereas the tax in kind assessed on farmers was deducted from the five per cent tax on capital, the same treatment was not accorded to the owners of non-agricultural property. He asked, therefore, for a reconsideration of this part of the tax act.2 In another respect, also, as he pointed out, a discrimination was observable, but in the reverse sense. Non-agricultural property was assessed at its value in depreciated currency, while agricultural property was assessed at the values existing at the outbreak of the war, before depreciation had set in. "This inequality creates discontent in the public mind and cannot be maintained as just and equal. In all public, as well as private transactions, it is dangerous to depart from the great principles of justice, with a view to effect present expediency. Doubtless it was supposed that legislation of this kind would reach the speculator and extortioner. But it will be found that most of these classes have escaped the tax by taking refuge in agricultural investments; while thousands of widows and orphans and loyal citizens, who have invested their all in stocks and securities, are deprived of their means of support." Finally, the secretary called attention to the workings of the property and income tax, including the tax in kind, and stated that over eighty-two millions had been received from the internal taxes. He declared, however, that 2 Ibid., p. 485. 3 Ibid., p. 487. 1 Memminger, op. cit., p. 484. "the difficulties which are encountered in the collection can only be estimated by any one who will inspect the mass of papers which are required for each return, and the inquiries necessary to be made of each individual taxpayer. The results of the tax will probably confirm the recommendation already made of a resort to a more simple system of taxation. The frauds and evasions, which cannot be discovered under the present system, are a perpetual drain upon the tax, which is necessarily increased by the number of officers who must be employed in its collection. And after all is done by the government which is possible, the result is that the most cunning in devices will escape, whilst only the honest and conscientious pay the full and just demands of the law."1 The recommendations of Secretary Memminger, however, could not be put into force. The Confederacy was hastening to its close, and amid the universal confusion incident to the breaking up of the body politic, but little attention could be paid to revenue questions. The experiment of the Confederacy with the income tax thus forms an unfinished chapter in fiscal history. In many respects the provisions were unique, and in some points the laws were more carefully elaborated than the similar legislation of the North. what might have happened with the Confederate income tax under more favorable auspices is a useless speculation. 1 Memminger, op. cit., p. 487. CHAPTER IV THE INCOME TAX OF 1894 § 1. The Origin of the Tax FOR almost two decades after the abandonment of the income tax the subject disappeared from the public mind.1 The demand for a progressive income tax was indeed found in the planks of the Socialist party and of the farmers' groups which afterwards consolidated into the Populist party. But in the country at large these demands were not noticed. The prosperity of the eighties brought to the front the problems of surplus financiering, and the country as a whole approved of the protectionist policy of the dominant party, a corollary of which was the periodical cutting down of the internal revenue taxes. There was therefore no need of any additional federal revenue. During the beginning of the nineties, however, the situation changed. The great decline in prices which had set in. 1 The greater part of this chapter was published in the Political Science Quarterly, vol. ix (1894), pp. 610 et seq., and in a slightly different form in the British Economic Journal, vol. iv (1894), pp. 637 et seq. For other contemporary articles, see C. F. Dunbar, "The New Income Tax," Quarterly Journal of Economics, vol. ix (1895), pp. 26 et seq.; A. C. Miller, "National Finances and the Income Tax," Journal of Political Economy, vol. iii (1895), pp. 255 et seq.; F. C. Howe, "Federal Revenues and the Income Tax,” Annals of the American Academy, vol. iv (1894), pp. 557 et seq. The discussions in Congress are treated by G. Tunnell, “Legislative History of the Second Income Tax Law," Journal of Political Economy, vol. iii (1895), pp. 311 et seq. For articles that were published before the enactment of the law, see the argument in opposition by D. A. Wells, "The Income Tax: Is it desirable?" in the Forum, vol. 17 (1894), pp. I et seq.; and the argument in favor by U. S. Hall, "The Income Tax: Reasons in its Favor," ibid., pp. 14 et seq. For articles that appeared after the passage of the law, but before the decision of the court, see D. A. Wells, "Is the Existing Income Tax Unconstitutional?" in the Forum, vol. 17 (1895), pp. 537 et seq.; and an article by the present writer, "Is the Income Tax Constitutional and Just?" ibid., vol. 18 (1895), pp. 48 et seq. |