income tax, namely, a tax on successions. As we have learned above,1 income has come in practice to denote a regular and periodic return. It is for this reason that many income tax laws estimate income at an average of a certain number of years, as the last three or five or seven years. In that way the fat years are balanced by the lean and a greater degree of justice is attained. Although this scheme was not adopted, the new law, nevertheless, was in the main based on the idea of annual recurring profits. It is surprising, then, to find a provision which imposes a tax upon the value of all "personal property acquired by gift or inheritance" during the year. If anything is irregular and unperiodic, it is an inheritance. The income from the inheritance is indeed regular; but the law taxed not only the income from the inheritance, but the inheritance itself. From the standpoint of an income tax, this was not only illogical, but constituted double taxation. In all the other income taxes of the world inheritances are either expressly or impliedly excluded. It may, indeed, have been desirable to impose an inheritance tax in addition to the income tax. But in that case it should have been discussed on its own merits and not smuggled into an odd corner of the bill.

sense.

It may be noticed in passing that "inheritance," strictly construed, applies only to real estate passing by descent. The term "inheritance tax" is popularly applied in America to a tax on the devolution of realty, whether by will or by intestacy, and is sometimes applied also to a tax on the devolution of personalty. But the new law used the term in a restricted The provision did not apply to real estate at all, and speaks of "personal property acquired by inheritance." This is very confusing. Passing over this misnomer, however, the exemption of real estate was due to the feeling, alluded to above, on the part of the mass of the small real-estate owners that they were already bearing more than their share of taxation. Whether or not the passage of this succession tax law was wise, we shall consider later. The point which we desire to 1 Page 20.

emphasize here is that the law of 1894 provided not only for an income tax, but also for a succession tax, and that the inclusion of "gifts and inheritances" in income is unscientific.

The fourth consideration which arrests our attention is that, from the American point of view, the law provided for a corporation tax as well as an income tax. We say from the American point of view, because we are accustomed to make a distinction between a corporation tax and other taxes. Strictly speaking, the antithesis is not between a corporation tax and an income tax or a property tax, but between a tax on corporations and a tax on individuals or, as it is sometimes called, a personal income tax.1 In England it would make no difference whether the tax were assessed to the individual security-holder or to the corporation. But in the United States the new law combined what during the early years of the Civil War period was embraced in two separate measures. There existed at that time, it will be remembered, not only a tax on corporate dividends and interest, but also a tax on certain corporate gross receipts, in addition to the tax on individual incomes. The corporations were permitted to add the gross receipts tax to the charges made, so that the tax was virtually shifted to the public. In the case of the corporate income tax, however, the corporations were not compelled to deduct the tax from the dividends or interest of each security-holder, and as a matter of fact they generally assumed the tax themselves without withholding it from the bondholder. It became to that extent a tax on the corporation, not on the bondholder. Under the new law the tax was also assessed directly on the corporation. But, as we have seen above, it was not assessed on corporate bonds. So that the question of withholding the tax from the interest due would. not arise. Yet so far as it went, it was a corporation tax in addition to the individual income tax.

The fifth point of importance is the $4000 exemption. The merit or demerit of this provision will be discussed below.

1 The latter term does not represent the distinction with perfect accuracy, because under the American law corporations are also considered persons.

1

There are, however, several considerations to which attention must be called here. In one sense the system was more logical than the English system. In England, it will be remembered, a certain small amount is absolutely exempted, while incomes up to a higher amount are permitted certain abatements; and it is only on incomes above the latter figure that the full amount is assessed. In the American income tax there was only a single exemption, but the abatement applied to all incomes of whatever amount. The tax was levied only on the excess of incomes over $4000. This is a provision the principle of which was already found in the income tax acts of the Civil War, and which has recently been adopted in some of the Australasian income taxes, where a deduction of a fixed amount is permitted for all incomes. But while it is entirely logical, it is manifestly unjust to permit the man with $4000 income to go entirely free and to impose on his neighbor who has perhaps $4010 income a tax of over $80. The jump is too sudden. It will be perceived, however, that the American system virtually provided for a slightly graduated tax running up from zero to almost two per cent on the entire income. For a proportional tax on the excess over a certain sum necessarily means a graduated tax on the entire amount.

Again, while the exemption was nominally accorded to all incomes, the introduction of the corporate income tax practically nullified the provision in one respect. Since corporations were to pay upon their entire net profits as defined by the law, it is manifest that persons who invested their whole property in corporate stock from which they received less than $4000 income, would nevertheless have the tax withheld from their dividends by the corporation. To the class of small investors the exemption accorded by the law was, therefore, of no use; for no machinery was provided for granting rebates to such taxpayers, as is the case in some other countries. The same inconsistency, as we know, occurred in the acts during the Civil War and was noted at various times. But it was deemed impracticable to remedy the injustice. In the case of official salaries, however, where the tax was ad

vanced by the government, provision was made for the exemption. The government was to withhold the tax only in case the salary exceeded $4000.

It must be noticed also that only one deduction of $4000 was permitted from the aggregate income of all members of any family. This might in some cases render the exemption nugatory. Under the recent development of American law the property interests of a married woman are often entirely independent of those of the husband. Where her income was less than $4000, she would nevertheless still be taxable if her husband's income exceeded that figure. The force of the objection is somewhat weakened, first by the fact that, after all, it is the family income as a whole which serves as the best test of ability to pay, and secondly by the fact that it is very unlikely that married women would have been assessed at all, even though the letter of the law called for the taxation of "all persons of lawful age."

The sixth and final point to which it is well to call attention is what is commonly called double taxation. The law, it will be remembered, applied not only to all citizens resident, but to the entire income, no matter where received, of citizens. residing abroad and of aliens residing in the United States; and it also applied to so much of the income of non-resident aliens as was derived from property or business within the United States. Here some interesting questions arise. Even assuming that the first and fourth classes would be reached, it is difficult to believe that the second and third classes could be touched. It might, indeed, be possible to assess the income of a non-resident in so far as it was derived from tangible property situate in this country. But in most cases it would be virtually impossible to reach the non-resident. Still more difficult would have been the task of hitting the entire income of foreigners resident in this country in so far as their income was derived from foreign sources; for the usual means of control would naturally be lacking.

Even assuming, however, that the practical difficulties were not insuperable, there would be grave objections in principle.

If a resident foreigner is taxed on his entire income here, and is again taxed on his income at home, we have manifestly double taxation. Or if a non-resident citizen is taxed by us on his entire income, and is then again taxed abroad in the country in which he happens to reside, we have a not less glaring case of double taxation. Some states, like Prussia, tax foreigners only after they have lived more than a year in the country, except when their income is derived from Prussian property or business. The law of 1894 contained no such provision. Again, while England does indeed assess resident aliens, it does not attempt to reach the entire income of non-resident citizens. The Civil War taxes did not at first even tax the income of aliens; but later they did try to reach the entire income of non-resident citizens. The new tax followed the mistaken policy of the later laws. But the practical effect of the provision would have been slight. For this part of the law, it may be conjectured, would almost inevitably have remained a dead letter.

§ 4. The Alleged Shortcomings of the Law

What, then, are we to think of this measure? Was it a wise innovation, or was it essentially vicious in principle and destined to be ineffective in practice? We can, perhaps, best approach the problem by discussing some of the objections that were raised against the law.

One of the arguments most commonly advanced by the opponents of the measure was the alleged socialistic character of the tax. To assess people upon their income was said to savor of socialism. The more violent enemies of the measure went so far as to maintain that the state has no right to confiscate any part whatever of a man's earnings. This objection, indeed, scarcely deserves a refutation. It entirely misconceives the relation of the individual to the state. The cry of "socialism" has always been the last refuge of those who wish to clog the wheel of social progress or to prevent the abolition of long-continued abuses. The