was $8,765,914, which corresponds to an income of $175,318, 280. The state assessment for the general property tax in that year disclosed property to the amount of $1,550,879,685. That is, the self-assessed incomes in New York amounted to over eleven per cent of the property - a preposterously high figure. If we assume that the average rate of profit at that time was seven per cent, the income on New York property should have been $108,561,578. Yet this was not two-thirds of the income actually assessed. The income tax yielded onethird as much again as a corresponding property tax. Of course some allowance should be made for incomes from other sources than property. But the exemption of $600 included almost all the working classes; and the profits from business are practically the income from property invested in the business. So that the only class for which an allowance must be made is that of receivers of professional incomes. The total income of this class is not large enough to make any material difference in the figures given. The success of the income tax as compared with the local property tax was due in part to the fact of the low valuation of real estate. But its main cause was the failure of the state tax to reach personal property. In other words, the federal income tax was able to reach many of those who contrived to escape the personal property tax.

The other years disclose a similar state of affairs. In 1866-1867 the income tax in New York yielded $18,448,664. It was levied at the rate of five per cent and ten per cent. Taking this as approximately equivalent to a uniform tax of seven and one-half per cent, the result would be a real income of $245,982,187. But let us grant, in order to weaken the contention still further, that it was tantamount to a uniform tax of as much as nine per cent on all incomes. That would mean an income of only 205 millions. The property assessed in New York by the state officials is returned at $1,531,229,636. Even assuming that the rate of income on capital was as high as seven per cent, we would have an income of $107,186,074. Yet the income actually returned exceeded this by

nearly 100 millions. Even under the least favorable showing incomes appeared as more than thirteen per cent of property —a figure manifestly extravagant. The income tax, therefore, produced almost twice as much as the general property tax. And even if we make the same allowance as before for incomes derived from other sources than property, the disproportion would still be very considerable. Even in 1870, when the limit of exemption had been increased so much as materially to reduce the returns, New York paid $10,420,035 as a five per cent income tax. This corresponds to a taxable income of $208,400,700. The assessment of property for the state tax was $1,967,001,185. This would mean that incomes were eleven per cent of property, which for that period is palpably far too high.

In short, the history of the income tax clearly shows that it was more lucrative than a corresponding property tax, and that it succeeded in many cases where the personal property tax failed. The federal income tax was indeed productive of great frauds, but the state property tax created far more. was precisely because the income tax reached so many of the mercantile and capitalistic classes who have both previously and since escaped taxation, that it became unpopular and was abolished.

It

In other parts of the country, indeed, the results may not have been quite so favorable, because of the more primitive economic conditions. Where the value of tangible realty exceeded that of personalty, as in some of the more purely agricultural states, the weakness of the general property tax was less noticeable. And it is possible that in such cases the federal income tax yielded less than a property tax. But wherever the economic conditions approached those of New York, it is probable that the results worked out above would find their counterpart there.

Even, however, if the federal income tax worked better than the state general property tax, it must be confessed that it did not work well. Let us in conclusion discuss the reasons for this comparative failure.

§ 7. Conclusion

The shortcomings of the system may be summed up under four heads mistakes of theory, defective provisions, exaggerated exemptions and administrative methods.

In the first place, the theory of the tax itself was partly a mistaken one. The two chief forms of income tax, as we know, are the lump-sum tax and the stoppage-at-source tax. The Civil War legislation adopted the stoppage-at-source scheme only to a slight extent, applying it only in the case of federal salaries and of the securities of a few specified classes of corporations. The conditions of American life at the time would, perhaps, have rendered impossible any thoroughgoing application of the English scheme. But there is no reason why, in the first place, the stoppage-at-source idea should not have applied to all corporations instead of to only a few classes; and second, why it should not have been applied to the salaries of corporate employes as well as to the income from corporate securities. Had the system of stoppage at source been extended even in these two directions, the history of the tax would have been a very different one.

In the second place, the law itself was very confused in parts and contained mistakes of principle. Such, for instance, were the provisions with reference to the rent and rental value of the homesteads, which led both to large fraud and to considerable diminution of revenue. In the same category of errors must be put the provisions with reference to the sales of real estate, and the details as to farm products. which rendered the administration of the law needlessly complicated and exceedingly difficult. As to profits from sales of real estate, the limitation to purchases within one year (or, later, two years), was, to say the least, arbitrary; while all the embarrassments connected with the assessment of farmers' profits might have been avoided by the adoption of the English system of basing the assessment on rental value, — a plan which had been recommended, as we know, by the commissioner of internal revenue.

In the third place, the exemptions were too high. Even if we concede that owing to the different scale of life in the United States, the exemptions ought to have been higher than those existing in England, there was no need of putting the exemption at so large a figure. The European method of abatement or of progressive diminution in the amount of exemption is far preferable to the method followed in the United States. The high exemptions, especially after the amendment of 1870, not only curtailed the revenue, but opened the door wide for evasion and fraud.

Finally, in the fourth place, the administrative methods were inadequate. It would indeed be too much to expect under the existing conditions of American public life that an exception should disclose itself in the income tax. But if good administration is necessary anywhere, it is doubly necessary in so delicate a matter as the assessment of incomes. Every one was, indeed, required to hand in a return of his income, but it was felt on all sides that administrative supervision was necessary. This administrative supervision, however, was not skilfully devised. The chief defect consisted in the great power given to the assistant assessors. These might ask any questions they chose, and might compel the production of books. It is indeed true that the taxpayers were not obliged to answer the questions, but as the commissioner of internal revenue stated, a refusal to do so might lead the assessor to doubt the correctness of the return. "Experience has shown. that questions are a great convenience in refreshing the memory of a large class of honest taxpayers who are not accustomed to keep accounts, and who, in many instances, cannot recollect all the sources of their income unless they are thus reminded. "1 But the questions that were put were not always of this character. Moreover, we are told that "the destruction or disappearance of books of account of the persons whose returns are unsatisfactory, is an event which is always a subject of just suspicion. It is hardly possible to give a credible explanation of it; but in most instances 1 I I. R. R., p. 145.

assessors will be justified in assuming that it is prima facie evidence of fraud, and treating the returns accordingly.":

These regulations would, in themselves, perhaps, be unexceptionable, if any reliance could be put upon the assistant assessors. Unfortunately, however, these were merely underlings, at a salary of a few dollars a day, and subject to all the vicissitudes of politics in their appointment and promotion. During a part of the time, at least, the service was in very bad shape. The commissioner of internal revenue tells us, in his report for 1867, that "the number of changes which have occurred during the last fiscal year in the personnel of the service, exceeds that of any year preceding, there being on the average more than three changes even of assessors and collectors in each office, during the year."2 In the following year the commissioner again referred "to the antagonism between the legislative and executive departments which has so sadly damaged the service of the past two years."3 Under such circumstances, of course, good administration was out of the question.

As a matter of fact, the American system was inferior to the English in three notable respects. First, there were no representatives of the taxpayers, as in the case of the English Land Tax Commissioners. Secondly, there were no expert and high-class men to do the work of assessment, as in the case of the English Additional Commissioners. Third, in the absence of civil service reform there was no permanent tenure of office, as in England. It is not to be wondered at, therefore, that the administration was so poor. The assessors were indeed given great powers, and in some cases they abused these powers unmercifully, while in others they succumbed to the danger of bargains or compromises with the taxpayers. The situation was rendered still worse by the pub

1 I I. R. R., p. 145.

2 In two cases there were four and five changes in each office respectively. In 114 districts 369 separate individuals served as collectors, and in 116 districts 370 persons served as assessors.- Report of the Commissioner of Internal Revenue for the year 1867, p. xiv.

3 Report of the Commissioner of Internal Revenue for the Year 1868, p. xviii.