according to their respective gains." Merchants and traders were taxed at figures varying from fifteen dollars to six hundred dollars "in proportion to their several gains, taking into consideration the capital employed in said business." Mechanics and manufacturers were assessed up to one hundred dollars, "according to the best discretion and judgment of the listers." This survival of the old custom, however, worked very badly and produced much dissatisfaction. The act of 1841 dropped all reference to the faculty tax, and although by an act of the following year the tax was revived as to attorneys, physicians, and surgeons, it was finally abolished in 1850 amid general jubilation.1

In Connecticut the old custom continued, nominally at least, until the adoption of the new constitution in 1819. The revenue commission of 1887 described the old system as follows: 2

"Connecticut from her earliest history had followed the plan of taxing incomes rather than property. Those pursuing any trade or profession were assessed on an estimate of their annual gains. Real estate was rated not according to its value, but in proportion to the annual income which, on the average, it was deemed likely to produce. Land . . . was put in the list at a fixed rate for each kind . . . not because these sums were deemed to be the value of the land, but because they were thought to represent the average income they would produce." This "ancient system of income taxes," as it was called by the commission, came to an end in 1819, and was replaced by the plan of taxing property according to the modern methods.3

In Rhode Island and New Hampshire, as we know, the old custom did not survive the eighteenth century. Massachusetts enjoys the distinction of being the only state in the

1 Laws of Vermont, 1825, c. ix; 1841, c. xvi; 1842, c. i; 1850, c. xxxix, p. 28.

2 Report of the Special Commission of Connecticut on the Subject of Taxation. New Haven, 1887, pp. 9-10.

8 Connecticut Session Laws of 1819, p. 338,

Union in which the faculty tax has continued down to the present day, and for that reason deserves a somewhat fuller

treatment.

66

In the last chapter we traced the history of the faculty tax in Massachusetts to the law of 1777, which, as we saw, was virtually continued by the new constitution of 1780. We noticed the gradual process by which the term “faculty tax" was displaced both in popular usage and in legal parlance by "income tax." No change was made in the wording of the provisions until 1821, when an act was passed which included among the sums to be returned to the assessor the amount of the income of such inhabitants from any profession, handicraft, trade or employment, or gained by trading at sea or on land, and also all other property of the several kinds returned in the last valuation, or liable to taxation by any law." This wording is repeated in the act of 1830;2 but in this act the term "faculty" is omitted, and it never reappears in later legislation. In the revised statutes of 1836 another change was made through the omission of the word "handicraft." The section reads as follows: "Personal property shall, for the purpose of taxation, be construed to include . . . income from any profession, trade or employment, or from an annuity, unless the capital of such annuity shall be taxed in this

The next change came in the law of 1849, providing that "income from any profession, trade or employment, shall not be construed to be personal estate for the purpose of taxation, except such portion of said income as shall exceed the sum of six hundred dollars per annum; provided, however, that no income shall be taxed which is derived from any property or estate which is the subject of taxation." In 1866 the exemption was increased to one thousand dollars, and in 1873, as a result of a compromise with those who were at

1 General Laws of Massachusetts from the Adoption of the Constitution to 1831 (3 vols.), vol. ii, Laws of 1821, c. 107, sec. 2.

2 Session Laws of 1830, c. 86.

8 Revised Statutes, c. 7, sec. 4.

4 Laws of 1849, c. 149.

tempting to have the law entirely repealed, to two thousand dollars. This is still the law to-day.

In fixing the meaning of the law of 1849, two decisions of importance were handed down by the Supreme Court. In 1856 it was decided that the tax did not apply to the income derived by citizens of Massachusetts from stocks of foreign corporations held by trustees. In 1870, however, the more important decision was made that the clause exempting incomes derived from property already taxed did not apply to the profits of merchants and others who employed such property in their business. The result was that although the stock in trade of a merchant was already taxable as personal property, the income which was derived from his business was again liable to the income tax. It was this decision which led in the early seventies to the counter-movement to repeal the tax, and which resulted in a compromise whereby, as stated above, the limit of exemption was raised to two thousand dollars.

"5

In 1875 a comprehensive report on taxation was made by a special commission. The commission stated that "no one of our taxes reveals so great a lack of uniformity in its construction and enforcement, and such a wide difference of opinion as to its worth, as is found with reference to the income tax." They called attention to the fact that although the law "has plainly and explicitly required the taxation of income, as a matter of fact, income is taxed in but very few places of the state; and the revenue derived from its assessment, either by municipalities or the state, is very inconsiderable." Out of a total of 340 towns on the valuation list of 1873 only 41 reported returns of incomes, while only five additional towns reported

1 Laws of 1866, c. 48; Laws of 1873, c. 354.

2 Susan Dorr vs. City of Boston, 6 Gray, p. 131.

8 Wilcox vs. County Commissioners of Middlesex, 103 Mass., p. 544. Cf. Collector vs. Day, 11 Wall., p. 113.

4 Report of the Commissioners appointed to inquire into the Expediency of revising and amending the Laws relating to Taxation and Exemption therefrom. Boston, 1875.

5 Op. cit., pp. 48, 49.

income and personal property, and only three reported income from salaries and learned professions. As a matter of fact, in the overwhelming mass of cases where the income tax was levied at all, it was imposed only upon people who already paid a personal property tax. The commissioners quoted the case of one town of 14,000 inhabitants, with a valuation of over $8,400,000 and containing many prosperous merchants and manufacturers, where only thirteen persons-consisting of cashiers, lawyers, clergymen, physicians, a mill agent, and an actuary were assessed for income on a total valuation of $15,121. The commission went on to state that "in view of the great discrepancy existing in the construction and application of the law in the few places where any attempt even is made to enforce it, of the small amount of revenue obtained from it, and of its entire disregard in so great a portion of the commonwealth, much doubt has been felt as to the expediency of retaining it on the statute book. Construed differently in different, and perhaps adjoining, places, enforced here, and allowed there to remain a dead letter, it no doubt works. hardship, inequality and injustice."

Several memoranda were submitted arguing on each side of the question of repeal. Mr. Beard presented a strong paper in which he concluded that the "tax is oppressive and unjust to individuals, and of very little benefit to the community."2 Mr. Pendergast objected strongly to what he considered the undue exemption of two thousand dollars.3 On the other hand, one of the principal assessors of Cambridge declared himself in favor of the tax. Calling attention to the fact that in one of the wards of Cambridge the assessment to the income tax amounted to about twenty-five per cent of the total value of personal estate and income, and that twenty-seven persons paid a tax on income that was

1 Report of the Commissioners, op. cit., pp. 50–51.

2 "The Massachusetts Income Tax." By Alanson W. Beard. Op. cit., pp. 433-437.

3 "Income from an Annuity, and Income from Profession, Trade or Employment." By George S. Pendergast. Op. cit., pp. 437-440.

valued at $519,400,1 he concluded, as a result of his experience that "individuals are just as ready and interested in rendering an account of their income as they are of any taxable property they may possess." He did not, however, expatiate upon their readiness to declare their personal property. As a concession to public sentiment, as revealed by this testimony of Mr. Brown, the commission declared itself unable to recommend its repeal, chiefly on the ground of the admitted defects of the general property tax. The general property tax was working so badly that in the opinion of the commissioners even the slight help given by the income tax in reaching the ability of those who otherwise would not be hit at all was worth preserving. They found, however, that the exemption was entirely too high, and recommended its reduction to one thousand dollars. They also realized that one great defect in the law was the undue decentralization of the system, and they suggested a "central supervising department of taxes."2 Finally they called attention to the double taxation that was imposed under the decision in Wilcox vs. Middlesex, and recommended a change in the law so as "to allow a deduction from the gross income of a sum equal to six per cent of the assessed value of the property employed in the business from which the income is derived."

None of the recommendations of the commission was followed. As a result the administration of the tax became more and more lax from year to year. In 1889 a special committee of the business association of Boston voiced its protest against what was left of the income tax. "The business men of this city," said the report, "are now living under an income tax than which nothing more irritating, indefensible and unjust can be well imagined."3 The report dealt espe

1 "The Income Tax, Why it should be Retained, and the Importance of Equally Enforcing It." By Dr. A. Z. Brown. Op. cit., pp. 441-450.

2 Op. cit., p. 55.

8 Report of Special Committee on Taxation. Boston Executive Business Association. Boston, 1889, p. 11. The report was signed by a committee of five prominent business men, headed by Mr. Jonathan A. Lane.