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"the Dred Scott decision of government revenue." Gradually, however, the conviction was strengthened that it was in vain to hope for a change in the supreme court which would convert the minority into a majority, and which would reverse the decision; for it was felt that such a proceeding would undoubtedly impair its prestige. The only alternative, however, was an amendment of the constitution, which would permit what the court had stated is now prohibited. The alternative was the plan finally determined upon, although it took almost fifteen years of agitation and of development of public sentiment before Congress was able to submit such an amendment. With this amendment we shall now have to deal.

later articles, see Wayne MacVeagh, "Graduated Taxation of Incomes and Inheritance," North American Review, vol. 182, pp. 823 et seq.; and the discussion on the subject of the income tax at the Sixth Annual Meeting of the National Civic Federation, by Andrew Carnegie and others in the National Civic Federation Review, vol. ii (1907), pp. 14 et seq.

CHAPTER VI

THE PROPOSED SIXTEENTH AMENDMENT TO THE CONSTI

TUTION

§ 1. The Origin of the Amendment1

We have stated the reasons why, if an income tax was to be made possible, an amendment of the constitution was imperative. For a time, indeed, it seemed as if the supreme court might recede from its position, especially when it held that the inheritance tax imposed during the Spanish War was not a direct tax, and that the earlier case of Scholey vs. Rew 2 had not been overruled by the Pollock case. In reality, however, the court did not attempt to alter the decision in the Pollock case, which it restated as being to the effect that "a tax which was in itself direct, because imposed upon prop

1 This chapter, excepting sections one and five, originally appeared in the Political Science Quarterly for June, 1910. The advance copies, however, were published and circulated early in March. In April appeared the Memorandum submitted to the Legislature of the State of New York in Opposition to the Amendment, by six of the leading lawyers of New York. The full title of this will be found supra, p. 558. Two weeks later appeared a defence of the amendment by another distinguished lawyer, J. Hampden Dougherty, The Proposed Sixteenth Article of Amendment to the Constitution of the United States. Memorandum containing a Criticism of Objections to the Amendment, and some Reasons for its Adoption. At the end of March the New York Economic Club held a meeting at which four addresses on the subject were delivered, all of which were printed in the Journal of Accountancy in May, vol. x (1910), pp. 18–42. The addresses opposed to the amendment were: William D. Guthrie, “No Taxation without Representation"; and Austen G. Fox, “Insert no Ambiguity into the Constitution." The addresses in favor of the amendment were: Lawson Purdy, "The Income Tax Amendment should be Ratified"; and Senator William E. Borah, "The Income Tax Sound in Law and Economics." For other articles on the subject, see Dwight W. Morrow, "The Income Amendment," Columbia Law Review, vol. x (1910), pp. 379 et seq.; and W. E. Borah, "The Income Tax Amendment," North American Review, vol. 191 (1910), pp. 755 et seq.

2 23 Wallace, 331.

erty solely by reason of its ownership, could not be changed by affixing to it the qualification of excise or duty." And in another passage the court gave still more precision to the existing rule by stating: "First, that no sound distinction existed between a tax levied on a person solely because of his general ownership of real property, and the same tax imposed solely because of his general ownership of personal property. Secondly, that the tax on the income derived from such property, real or personal, was the legal equivalent of a direct tax on the property from which said income was derived, and hence must be apportioned."1

Very shortly after this the court again had occasion to take up the question of direct taxation. When the internal revenue was increased in 1898, during the Spanish War, it was proposed to tax corporations on their gross earnings. When the bill emerged from committee, however, it became "a special excise tax on the gross receipts of companies refining petroleum or refining sugar," and as such became law. This act was attacked as obnoxious to the income-tax decision, but was upheld by the court.2 Although the decision was again in harmony with the Pollock case, hopes were nevertheless aroused in the minds of some that the court would see its way clear to make further distinctions. The opportunity for this, however, did not arise. As late as 1900, indeed, President Roosevelt in his annual message stated that, a "graduated income tax of the proper type would be a desirable feature of federal taxation, and it is to be hoped that one may be devised which the supreme court will declare constitutional."

By 1908, however, this had become so doubtful that the Democratic platform included a resolution that "we favor an income tax as part of our revenue system, and we urge the submission of a constitutional amendment specifically authorizing congress to levy and collect a tax upon individual and corporate incomes, to the end that wealth may bear its

1

Op. cit., p. 82.

2 Spreckels Sugar Refining Company vs. McClain, 192 U.S., 397.

proportionate share of the burdens of the federal government." The candidate of the Republican party, Mr. Taft, did not, however, agree with this. In his speech of acceptance on July 28, 1908, he said: "In my judgment an amendment to the constitution for an income tax is not necessary. I believe that an income tax, when the protective system of customs shall not furnish income enough for individual needs, I can and should be devised which, under the decisions of the supreme court will conform to the constitution." After the victory of the Republicans at the polls, Mr. Taft's views seemed to have changed, for in his inaugural address, while not opposing an income tax, he said nothing about it, but suggested, obviously in its stead, an inheritance tax. "Should it be impossible to do so [secure sufficient revenue] from import duties, new kinds of taxation must be adopted, and, among these I recommend a graduated inheritance tax as correct in principle and as certain and easy of collection."

In conformity with this recommendation, an inheritance tax provision was introduced into the new tariff bill that was discussed in the spring of 1909. It soon became apparent, however, that the movement in the West in favor of some kind of income taxation had become exceedingly strong. So loud was the opposition of the insurgents to the proposed Payne-Aldrich tariff that the leaders of the Republican party recognized the impossibility of securing enough votes to carry the tariff unless some concessions were made on the question of the income tax. As early as April 15, Senator Bailey, of Texas, had moved an amendment for a general income tax,1 at the rate of three per cent of incomes over $5000, and six days later, Senator Cummins, of Iowa, proposed a graduated income tax2 on all incomes over $5000, the rates ranging from two up to six per cent on all incomes over $100,000. These two amendments were later on consolidated, and became known as the Bailey-Cummins amendA general discussion now ensued, in which many of

ment.

1 Congressional Record, vol. 44 (1909), p. 1351.

2 Op. cit., p. 1468.

the progressives of both parties spoke in favor of an income tax.1

The strength which the income-tax proposition developed alarmed the Republican leaders considerably. When, therefore, the inheritance-tax provision was dropped, very largely because of the opposition of the various states, an attempt was made to placate the insurgents by agreeing to enact at once a tax on corporate incomes, and to couple with this the submission of an income-tax amendment to the states. President Taft now declared his conversion, and in a special message of June 16, 1909, he stated: “Although I have not considered a constitutional amendment as necessary to the exercise of certain phases of this power [to tax incomes], a mature consideration has satisfied me that an amendment is the only proper course for its establishment to its full extent. I therefore recommend that both Houses ... shall propose an amendment to the constitution, conferring the power to levy an income tax upon the national government without an apportionment among the states.

The corpotax only on Senator Al

I have become convinced that a great majority of the people of this country are in favor of vesting this national government with power to levy an income tax." The programme was accordingly carried out. ration tax was adopted, but in the form of a corporate dividends at the rate of one per cent. drich stated, on June 29, "I shall vote for the corporation tax as a means to defeat the income tax," 2 and Senator Root said: "Gentlemen may assume I am for the corporation tax to beat the income tax. I care not. I am for the corporation

1 Among these speeches are especially to be noted those of Hitchcock on February 20, op. cit., vol. 43, p. 2842; of Hull on March 31, op. cit., vol. 44, p. 502; of Bailey on May 3 and 4, op. cit., pp. 1692 and 1749; of Borah on May 5, op. cit., p. 1363; of Sutherland on May 19, op. cit., p. 2243; of Newlands on May 27, op. cit., p. 2518; and of Cummins on July 7, op. cit., p. 4285. In the House of Representatives also a number of speeches were delivered in favor of the income tax, especially by Dixon, Hobson, Dies, Sharp, Hamlin, Cline, and Hinshaw. Op. cit., pp. 4524-4685.

2 Congressional Record, vol. 44, pt. iii, p. 3929.

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