are now engaged in an attempt greatly to reduce the number of forms and certificates. So far as income from sources other than corporate interest is concerned, the situation has been rendered much simpler by a regulation that the tax shall not be withheld until the aggregate of the payments during the year amounts to more than $3000. The tax is then to be paid upon this aggregate unless the person to whom the income is payable files with the withholding agent a claim for the three or four thousand dollar exemption, respectively, in which case the tax is to be withheld only on the excess above the exemption claimed. The tax payer may present his claim for exemption to the revenue officers, rather than to the withholding agent. In a great majority of the cases, of course, this will be done, because in order to take advantage of the deductions, the tax payer must file a statement of his annual income from all other sources. After the tax has once been withheld, any one may subsequently pass on the money involved without incurring any liability for further withholding or payment. It must also be remembered that the obligation on the part of the withholding agent to deduct the tax does not apply where the payment is made to corporations. Owing to this provision, as well as to the regulation governing the $3000 exemption, most of the complications which had been anticipated, so far as concerned rentals of real estate or the interest on real estate mortgages, will be effectively removed. There are still left, however, not a few minor administrative difficulties to be overcome.

Finally, it is to be stated that the law took effect, so far as the date of taxable income is concerned, as of March 1, 1913. Manifestly, however, the provision requiring payment at the source could not be made retroactive, and was enforced only from November 1st. Were it not for the fact that the treasury regulations provided that during November and December, 1913, the tax was to be withheld only on payments aggregating $3000 during these two months, the confusion which occurred when the law went into effect would have been far greater than it actually was.

V. Other Administrative Features

There remain for consideration some of the miscellaneous administrative provisions of the law.

Of these, perhaps the most interesting is that which provides for secrecy. The law states that it shall be unlawful for any officer or employee of the United States to divulge any detail set forth in any income return, nor shall he permit any details to be seen or examined by any person except in the manner to be mentioned; nor shall any person print or publish in any way any detail connected with the income returns. The returns of corporations, however, constitute public records, open to inspection upon the order of the president, under rules and regulations to be prescribed. It is further provided (and this is due to Senator La Follette) that the proper officers of any state imposing a general income tax may, upon the request of the governor thereof, have access to such corporate returns. The secrecy imposed in the case of individuals is in bold contrast to the publicity of returns under the earlier Civil War income-tax acts.

Every individual with an income exceeding $3000 during the preceding calendar year must file a return on or before March 1st under oath or affirmation, with the collector of the internal revenue for the district in which he resides or has his principal place of business. The only exception is in the case of individuals whose income does not exceed $20,000 all of which has been derived from corporate dividends, or from sources where the tax has already been withheld.1 Neglect or refusal to make the returns involves a penalty of from $20 to $1000, and an increase of fifty per cent in the tax. A false or fraudulent return made with intent to evade the tax is punishable with a fine not exceeding $2000, or imprisonment not exceeding one year, or both, together with the costs of prosecution. The commissioner of internal revenue is empowered

1 For the year 1913 the returns are only to include the income that has accrued between March 1st and December 31st, after deducting five-sixths of the statutory exemptions and deductions.

to amend the return upon the discovery of fraud at any time within three years after it is due. It is to be observed that although the return is called for from the individual, the assessment itself is to be made by the commissioner of internal revenue or his assistants. It is only when no return has been rendered, or when a return is rendered which in the opinion of the collector is false or fraudulent or contains any undervaluation or understatement, that the collector is permitted to proceed further. He may then summon the individual or any other person having possession of the books, or any person that he deems proper, to appear before him, to produce the books, and to give testimony, or to answer interrogatories under oath "respecting any possible liability to tax or the returns thereof." The tax is payable on or before June 30th of every year.

Corporations are permitted to make a choice between two methods. They may file a return for the calendar year, in which case they are notified of the tax assessed against them by June 1st, and are then liable to pay the tax before June 30th. If, however, they prefer to file a return for a fiscal year which does not coincide with the calendar year, they are compelled to pay the tax within one hundred and twenty days after the date upon which they are required to file a return. Taxes remaining unpaid after the due date together with ten days' additional notice from the collector, are increased by five per cent of the amount of the tax together with interest added also. Corporations neglecting or refusing to make returns at the stated time, or making a false return, are liable to a penalty not exceeding ten thousand dollars. Moreover, in the case of refusal or neglect, the return is increased fifty per cent, and in case of fraud, one hundred per cent. Any officer of a corporation who makes a false or fraudulent return is subject to a fine of two thousand dollars or to imprisonment for one year or to both. It will be seen, therefore, from the above regulations that the provisions for the collection of the tax are not only ample but rigid. ·

VI. Conclusion

The income tax law of 1913 is not perfect. It is not in all respects well drawn, and there are not a few obscure points which will require interpretation by the administrative authorities or the courts. Moreover, it contains defects of omission as well as of commission.

Many of the criticisms urged both before and after the passage of the law are indeed not valid. Thus it was maintained that if an income tax should be imposed, there would surely be discrimination against New York and the other wealthier states. As a matter of fact, there is no discrimination in the present law except that which arises from the fact that New York is wealthier than other states, and therefore ought to pay a larger sum. No one would think of protesting against the justice of customs duties because as a matter of fact so large a proportion is collected from the port of New York. It is interesting to notice that in the year 1871, the year before the abolition of the Civil War income tax, when residents of New York state paid slightly over thirty-nine per cent of the entire tax, they paid actually more than that percentage of other federal taxes for instance, forty-one per cent of the tax on gas, and forty-two per cent of the taxes in Schedule A. In 1867, indeed, New York paid no less than fifty-six per cent of the tax on sales. If New York pays more than thirty-nine per cent of the present income tax, it will simply mean that there has been in the intervening years a greater concentration of wealth in that state.

In the same way the charge that the tax is socialistic can be brushed aside. It is true that we now have a graduated scale of taxation, but the extremes of graduation are lower than in other countries. It is also true that the exemption is placed at a figure which may seem excessive. It must be remembered, however, in addition to the three reasons mentioned above, that this is, on the whole, in accord with the conception of taxation that has long obtained in America. 1 Supra, pp. 686-687.

For many decades the great mass of state and local revenues has rested on the basis of the general property tax, the accepted principle of which is to exempt all those who have not accumulated property. Now if it is true, as is claimed, that the recipients of an income of $3000 ordinarily spend the greater part of their income and lay by little or nothing, the exemption of $3000 from an income tax would amount to the usual exemption involved in the imposition of a general property tax. For if a man saves nothing from a $3000 income, he will not be subject to a property tax. Whether or not it is accurate that the recipients of $3000 income ordinarily spend all of it, it is probable that with the rising standard of life in this country, much, if any, saving is unlikely; and to the extent that this is true, the argument for a comparatively high exemption seems to be defensible. Those who urge that there should be no exemption at all or a very slight one, forget that they are running counter to the whole theory of the general property tax which has hitherto been at the basis of American fiscal policy. The $3000 exemption, then, does not involve any serious departure from accepted principles of fiscal justice.

The real defects of the income-tax law are entirely different. In the first place, no attempt has been made to introduce a differentiation of taxation; that is, to distinguish between the rate on earned and unearned incomes. This scheme was indeed suggested during the discussion, in the shape of a formal amendment.1 But its full import seems to have been misunderstood, and in the haste of the elaboration of the bill, the matter was allowed to drop. It must be remembered, indeed, that the question of differentiation of taxation was agitated in England for half a century; but it is also true that differentiation was finally accepted before graduation the one in 1907, the other in 1910. In our present law, on the other hand, the principle of graduation has been accepted, but it still remains to introduce that of

1 By Senator Crawford, approved by Senator Cummins. Congressional Record, pp. 4233, 4280, Aug. 27, 29, 1913.