THE GIFT OF 
 
 MAY TREAT MORRISON 
 
 IN MEMORY OF 
 
 ALEXANDER F MORRISON
 
 INCOME TAXATION 
 
 METHODS AND RESULTS 
 IN VARIOUS COUNTRIES 
 
 BY 
 
 KOSSUTH KENT KENNAN 
 
 * * 
 
 1910 
 
 BURDICK & ALLEN 
 
 Publishers 
 Milwaukee, Wis.
 
 COPYRIGHT 1910 
 
 by 
 Burdick & Allen 
 
 Set up and Electrotyped November, 1910
 
 Library 
 
 HJ 
 
 PREFACE. 
 
 It is not the purpose of this book to discuss the 
 question of income taxation from a theoretical stand- 
 point; but rather to collate the more important facts 
 regarding methods and results of such taxation in 
 various countries and to present them in such a man- 
 ner that they will be" useful and readily available to 
 business men, legislators, students and others who 
 may wish to study the subject from its practical side. 
 The passage of the Corporation Tax Law, which 
 is a form of income tax, the proposition to amend the 
 Constitution so as to permit the levy of a Federal in- 
 come tax, and the agitation in some states for local 
 income taxes, have all contributed to awaken a special 
 interest in this form of taxation. The last Federal in- 
 & come tax in the United States was repealed nearly 
 w forty years ago and the present generation has al- 
 H most forgotten that such a tax ever formed an im- 
 portant part of our fiscal system. But recent events 
 have brought this form of taxation into the fore- 
 
 ground of public discussion and it becomes important 
 to know what results have been attained by it in this 
 5 and other countries. 
 
 The subject is too large to be treated with any 
 ^ pretension of thoroughness in a single volume and 
 . the constant necessity for condensation has given the 
 ^. book more of a statistical character than was original- 
 * ly intended. The facts which are presented have been 
 gathered from a great variety of sources, many of 
 which are books in foreign languages not readily ac- 
 t cessible to the average reader. For the benefit of 
 those who may desire to investigate the subject more 
 thoroughly numerous references have been made in 
 the notes to such' authorities and sources of informa- 
 tion as have been found most instructive and helpful. 
 
 Milwaukfe, November 10, 1910.
 
 TABLE OF CONTENTS. 
 
 Chapter I. Definitions I- *7 
 
 Income 
 Tax 
 
 Income Tax 
 Proportional 
 Graduated 
 Progressive 
 Regressive 
 Degressive 
 Exemptions 
 Abatements 
 Differentiation 
 Super-tax 
 Direct Taxes 
 
 Chapter II. Australasia 18- 34 
 
 New South Wales 
 New Zealand 
 Queensland 
 South Australia 
 Tasmania 
 Victoria 
 Western Australia 
 
 Chapter III 35- 57 
 
 Austria 
 
 Belgium 
 
 British Columbia 
 
 Canada 
 
 Cape of Good Hope 
 
 Denmark
 
 Chapter IV. England 58-74 
 
 Chapter V. France 75- 85 
 
 Chapter VI. Germany 86-106 
 
 Prussia 
 
 Chapter VII. Germany 107-129 
 
 Minor German States 
 
 Chapter VIII 130-155 
 
 Greece 
 
 Hawaii 
 
 Holland 
 
 Hungary 
 
 India 
 
 Italy 
 
 Chapter IX 156-180 
 
 Japan 
 
 Leeward Islands 
 Luxemburg 
 Norway 
 Panama 
 Philippines 
 Russia 
 Finland 
 
 Chapter X 181-202 
 
 St. Vincent 
 
 Seyschelles 
 
 Spain 
 
 Sweden 
 
 Switzerland
 
 Chapter. XL United States 203-236 
 
 A. Income Taxes in the Colonies 
 
 B. Income Taxes in the States 
 
 Chapter XII. United States. Federal Income 
 
 Taxes 237-272 
 
 A. The Civil War Income Tax 
 
 B. The Income Tax Law of 1894 
 
 C. The Income Tax in the 
 
 Southern Confederacy 
 
 Chapter XIII. United States. The Corporation 
 
 Tax Law 273-286 
 
 Chapter XIV. United States. The Proposed i6th 
 Amendment to the Constitu- 
 tion 287-306 
 
 Chapter XV. Summary 37-3 2 5 
 
 Appendixes 
 
 Bibliography 
 
 Index
 
 CHAPTER I. 
 
 DEFINITIONS. 
 
 The necessity for a chapter on definitions may not 
 be at once apparent; but when it is seen how much 
 confusion has arisen from the various meanings given 
 to even the most common words connected with the 
 subject of taxation, the importance of defining clearly 
 some of the terms most frequently used will be con- 
 ceded. In the words of a French writer upon taxa- 
 tion: "So long as writers use words which have no 
 precise signification, which may be and are inter- 
 preted in a variety of ways, and which may convey 
 different ideas to different minds, there will be uncer- 
 tainty in their theories, or rather there will be vague, 
 incomplete and poorly co-ordinated theories; and 
 then, as all practice is the application of theories, the 
 practice resulting from them will be faulty." 
 
 Income. In its general sense income has been 
 defined to be "that which comes in to a person as pay- 
 ment for labor or services rendered in some office, or 
 as gains from lands, business, the investment of 
 capital, etc. ; receipts or emoluments regularly accru- 
 ing either in a given time or, when unqualified, an- 
 nually; the annual receipts of a person or corpora-
 
 2 INCOME TAXATION 
 
 tion; revenue." 1 It is evident that the above defini- 
 tion, in so far as it mentions gains, has reference to net 
 income, while the latter portion of the definition 
 would apply to gross income, or gross receipts. That 
 gross receipts ;may differ widely from the popular 
 *f- income will be seen if we take as an 
 
 the, case of a merchant who may receive 
 'large 'sums 'of money in the course of a year only to 
 find himself bankrupt at the end of that period. It 
 would hardly be said of him that he had an income 
 to the amount of his gross receipts. On the other 
 hand, in the case of a man who has no other income 
 than his salary, it might be said that his income and 
 his gross receipts were identical. 
 
 The idea of income will differ somewhat accord- 
 ing to whether it is considered as derived from ser- 
 vices or from property. For example, income has 
 been defined as "the returns which come in to the in- 
 dividual as the result of his economic activities, or 
 from his control of the economic activities of others;" 
 while another writer, having in mind the income from 
 property, says that it "consists of what the property 
 produces ; the profit which comes from its use in busi- 
 ness or what is paid for its use by another than its 
 owner." 2 
 
 It is important to differentiate between the 
 economic and legal conceptions of income. A Ger- 
 
 1 . Century Dictionary. Webster's New International Diction- 
 ary (1910) defines income as "that gain or recurrent benefit (usually 
 measured in money) which proceeds from labor, business or prop- 
 erty; commercial revenue or receipts of any kind, including wages 
 or salaries, the proceeds of agriculture and commerce, the rent of 
 houses or the return on investments." 
 
 2 . Howe. The American Law relating to Income, p. 1.
 
 DEFINITIONS 3 
 
 man writer on political economy has defined income 
 as the sum of economic goods or gains accruing to a 
 person within a given period, which are not needed 
 to replace capital and which the person may there- 
 fore consume without diminishing his wealth. 3 This 
 is perhaps a fairly typical definition out of many which 
 might be quoted; but when an attempt is made to 
 draw the line between income and capital, wide 
 divergences of opinion are noted. Professor Irving 
 Fisher has written a book of several hundred pages 
 upon "The Nature of Capital and Income," in which 
 he argues that the services which a man receives from 
 his profits and gains is all that can properly be called 
 income. In other words, he would make expenditure 
 or consumption the basis of income taxation. 4 He 
 draws rather fine distinctions between income, sav- 
 ings and earnings and argues that savings are not in- 
 
 3 . "Unter Einkommen versteht man die Summe der einer Per- 
 son in einem bestimmten Zeitraume zufliessenden wirthschaftlichen 
 Gueter oder Wertherhoehungen, welche nicht Ersatz von Kapital 
 sind und von derselben daher ohne Verminderung ihres Vermoegens 
 verzehrt werden koennen." Th. Mithoff in Handbuch der politi- 
 schen Oekonomie. Vol. 1, p. 590. "Income in an economic sense 
 implies an increase of wealth in addition to that which is already 
 possessed and which comes in within a definite period of time, giv- 
 ing an increased power of satisfying wants within that time. Only 
 net income is such income." Weston, Principles of Justice in Taxa- 
 tion, p. 179. 
 
 4 . As an illustration of Fisher's theory as applied to the income 
 tax the following example may be instructive : Three brothers 
 each supposedly inheriting $10,000, are subjected to an income tax. 
 The first invests his $10,000 in a perpetual annuity of $500; the 
 second deposits his portion in trust to be invested in an annuity of 
 $1,000 to begin at the end of fourteen years, after the capital has 
 doubled ; the third, a spendthrift, buys an annuity of .nearly $2,000 
 for six years. According to Fisher, the $500, the $1,000 and the 
 $2,000 are the true realized incomes which alone should be taxed 
 under income taxation ; the second brother should be taxed on noth- 
 ing until after fourteen years, as until then he would be spending noth- 
 ing; and the third brother should be taxed during his brief spend- 
 thrift career on an income of $2,000,
 
 4 INCOME TAXATION 
 
 come, a conclusion which is sharply criticized and dis- 
 puted by some good authorities. 8 
 
 It might be expected that the courts and law- 
 makers would be exact and uniform in their definition 
 of income in a legal sense, but unfortunately they are 
 not, as the following extracts from some of the de- 
 cisions will show. 
 
 In a New York decision often cited the Court used 
 the following language : 
 
 It is undoubtedly true that "profit" and "income" are 
 sometimes used as synonymous terms ; but, strictly speak- 
 ing, "income" means that which comes in or is received from 
 any business or investment of capital, without reference to 
 the outgoing expenditures, while "profits" generally mean 
 the gain which is made upon any business or investment 
 when both receipts and payments are taken into account. 
 "Income" when applied to the affairs of individuals, ex- 
 presses the same idea that "revenue" does when applied to 
 the affairs of a state or nation ; and no one would think of 
 denying that our government has any revenue, because for 
 a stated period the expenditures may exceed the amount of 
 the receipts. 6 
 
 Upon the question of whether or not income could 
 be considered property, it has been held: 
 
 Gross earnings and interest coming in from any source, 
 labor, capital investment of any sort, or money loaned, are 
 not property in the sense of the constitution, but are merely 
 income. Certainly the gross earnings of a laboring man are 
 nothing but his income. So it would seem that the earnings 
 of a salaried officer are income, and so the income from 
 capital employed in a bank or railroad or manufacture would 
 seem to be income only. The net income after the expenses 
 are paid becomes property when invested, or. if it be money 
 
 5 . See criticism of Fisher's book by Frank A. Fetter in Journal 
 of Political Economy, Vol. 15, p. 129. See also article, "Are Sav- 
 ings Income?" and discussion of same in Publications of American 
 Economic Association, Third Series, Vol. IX, p. 48, et seq. 
 
 6 . People vs. Niagara County Supervisors, 4 Hill (N. Y.) 20.
 
 DEFINITIONS 5 
 
 lying in a bank or locked up at home. But to call it prop- 
 erty, when it is all consumed as fast as it arises going on 
 the back, in the stomach, or in carriages and horses, which 
 are taxed, or in travel or frolic to call such income, so 
 used, property would seem to be a perversion of the term. 7 
 
 As against this "gross receipts" conception of in- 
 come we have such expressions as the following: 
 "The income of an estate means nothing more than 
 the profit it will yield, after deducting the charges of 
 management or the rent which may be obtained for 
 the use of it. The rent and profit of an estate or the 
 income or the net income of it are all equivalent ex- 
 pressions." 8 "Income is defined as that gain which 
 proceeds from labor, business or property of any 
 kind; the profits of commerce or business." 9 "In the 
 
 7 . Waring vs. City of Savannah, 60 Ga. 93-99. In the course 
 of the opinion, the court makes use of the following apt illustration : 
 "The fact is, property is a tree ; income is the fruit ; labor is a tree ; 
 income the fruit; capital a tree; income the fruit. The fruit, if 
 not consumed as fast as it ripens, will germinate from the seed 
 which it enclosed, and will produce other trees, and grow into more 
 property; but so long as it is fruit, merely, and plucked to eat, and 
 consumed in the eating, it is no tree, and will produce itself no 
 fruit." 
 
 Compare President Hadley's statement : "Capital is constantly 
 being converted into income and income into capital. But capital 
 under all times and conditions is measured as a quantity, while in- 
 come is more properly measured as a rate. Capital is a static con- 
 ception independent of time ; income a dynamic conception involving 
 the element of time." Economics, p. 5. 
 
 8 . Andrews vs. Boyd, 5 Me. (5 Greenleaf) 199-203. See also 
 Earl vs. Rowe, 35 Me. 414-420. Simcoke vs. Sayre, 126 N. W. Rep. 
 p. 816. (Iowa Supreme Court, June 16, 1910.) In the latter case 
 dividends and profits are distinguished as follows : "The word 'divi- 
 dends' has a peculiar and definite significance. It means a distribu- 
 tive sum, share or percentage arising from some joint venture as a 
 corporation or a proportionate amount arising from a bankrupt or 
 other estate. The term 'profit' has a much larger meaning, how- 
 ever, and covers benefits of any kind, excess of value over cost, 
 acquisition beyond expenditure or advance. It is broad enough to 
 cover any sort of advantage, advance or gain." 
 
 9 . Appeal of Braun, 105 Pa. 414-415. 
 
 Thorn vs. DeBreteuil, 83 N. Y. Sup. 849-856. 
 Appeal of Eley (Pa.) 2 Kulp, 467-469.
 
 6 INCOME TAXATION 
 
 ordinary commercial sense, 'income,' especially when 
 connected with the word 'rent,' may mean clear or 
 net income." 10 
 
 The Federal income tax law of 1862, levied a tax 
 "upon the annual gains, profits or income of every 
 person." In Sections 27 and 28 of the income tax law 
 of 1894, which was held unconstitutional, the words 
 "gains, profit and income" occur repeatedly, while in 
 Section 32 the reference is to "net profits or income" 
 and "net annual profits." The Corporation Tax Law 
 of 1909, applies specifically to net income and rules 
 are given for determining what is net income and 
 what is gross income. 
 
 Thus it appears that "income" is used both in a 
 broad sense referring to gross receipts and in a nar- 
 rower sense as equivalent to net gains or profits. The 
 latter meaning seems to have the greater weight of 
 authority and to be most nearly in accord with the 
 popular conception of income. The word income will 
 therefore be used in this book in the restricted sense 
 of annual net earnings, profits or gains. 11 
 
 Tax. A well known writer on taxation has said 
 that no correct definition of a tax has yet been framed. 
 Dr. Richard T. Ely, in his "Taxation in American 
 States and Cities," makes substantially the same as- 
 
 10 . Thompson's Appeal, 100 Pa. 478-481. 
 
 ". For a large number of court decisions holding that the usual 
 and ordinary meaning of the word income is net income and de- 
 fining income as "the balance of gain over loss in the fiscal year or 
 other period of computation ;" "what is left after paying the expense 
 of earning income;" "that which property or business earns, re- 
 maining intact," etc., see Cyclopedia of Law and Procedure, Vol. 
 22, p. 63. In Canada income is defined by statute to mean the annual 
 profits or gain arising to any inhabitant from any trade, etc. New 
 Brunswick Gen. Ass't Act. (quoted in Lawless vs. Sullivan, 6 App. 
 cases 373-381). 50 L. J. P. C. 33. 44 L. T. Rep. N. S. 897.
 
 DEFINITIONS 7 
 
 sertion, and after criticizing the definitions of Cooley 
 and others suggests the following definition as ac- 
 curate and complete : 
 
 Taxes are simply one-sided transfers of economic goods 
 or services demanded of the citizens and occasionally of 
 those not citizens, but who, nevertheless, are within reach of 
 the taxing power, by the constituted authorities of the land 
 for meeting the expenses of government, or for some other 
 purpose, with the intention that a common burden shall be 
 maintained by common contributions or sacrifices. 12 
 
 At the risk of seeming presumptuous, we venture 
 the suggestion that whatever taxes may be, they are 
 not "transfers." Many taxes are levied and assessed 
 which are not collected. In such case there is no 
 transfer, "one-sided" or otherwise. The definition 
 seems inconsistent with the statement which im- 
 mediately follows that "taxes are not an exchange 
 nor are they a payment." Judge Cooley has defined 
 taxes as "the enforced proportional contribution from 
 persons and property, levied by the State, by virtue of 
 its sovereignty, for the support of government and for 
 all public needs/' 13 In another place he says: "Taxes 
 are understood to be burdens or charges imposed by 
 the Legislature upon persons or property, to raise 
 money for public purposes." 14 
 
 Dr. Ely would criticize both of these definitions as 
 referring solely to public needs and public purposes, 
 claiming that taxes are often levied for other pur- 
 poses. But Judge Cooley's answer to this is : "A 
 burden, laid not for the purpose of producing revenue, 
 but in order to accomplish some ulterior object which 
 
 12 . Ely, Taxation in American States and Cities, p. 6. 
 
 13 . Cooley on Taxation, 3rd Ed., p. 1. 
 
 14 . Cooley, Constitutional Limitations, p. 479.
 
 8 INCOME TAXATION 
 
 the general government lacks the power otherwise to 
 accomplish, * * * comes under no definition of 
 the word 'tax' which is recognized in public law." 15 
 As for taxes for private purposes, it must be remem- 
 bered that the Supreme Court of the United States 
 has held that "there can be no lawful tax which is not 
 laid for a public purpose." 16 
 
 Judge Cooley's definition of taxes, if not the best, 
 is at least one of the best which has come to my notice 
 thus far and I am disposed to adopt it until a better 
 one is presented. 17 
 
 Income Taxes. It might be supposed that if the 
 definitions of income and taxes were understood there 
 could be no doubt about the meaning of income tax; 
 but many disputes have arisen as to whether certain 
 taxes could properly be called income taxes or not. 
 For example, the graduated poll taxes of 1379 in Eng- 
 land and the progressive forced loans les emprunts 
 forcees progresses of the French Revolution have 
 been both claimed and repudiated as income taxes. 
 
 15 . Cooley on Taxation, 3rd Ed., p. 191. 
 
 16 . Loan Association vs. Topeka, 20 Wallace (U. S.) 655-664. 
 
 17 . Among the many definitions of taxes the following are 
 worthy of notice: "The public revenues are a portion which each 
 subject gives of his property in order to secure and enjoy the re- 
 mainder." Montesquieu, Esprit des Lois, Livre XIII, Ch. 1. "Every 
 contribution regularly demanded of the citizens by the constituted 
 authorities of the land for meeting the expenses of government, is 
 a tax." Leroy-Beaulieu, Traite de la Science des Finances, Vol. 1 
 (2nd Ed.) p. 105. "A tax is that part of the wealth of private 
 individuals which the authority of the state, province or municipality 
 appropriates in order to provide for the public expenses incurred 
 for the advantage of the general body of the taxpayers." Cossa, 
 Scienza delle Finanze, Ch. IV, p. 50. 'Taxes are burdens 
 or charges imposed by the legislative power of a state upon 
 persons or property for public uses." Chief Justice Dixon 
 in Knowlton vs. Supervisors of Rock County, 9 Wis. 410. 
 (Evidently quoted from opinion of Judge Bronson in Sharp 
 vs. Speir, 4 Hill (N. Y.) p. 76.)
 
 DEFINITIONS 9 
 
 In like manner the early "faculty taxes" of the Ameri- 
 can colonies are often spoken of as income taxes, 
 though good authorities deny that such designation 
 is proper. 18 
 
 In a broad sense an income tax is a tax the amount 
 of "which is determined with reference to the income of 
 the taxpayer. It is thus distinguished from the prop- 
 erty tax, the amount of which is determined with 
 reference to the value of the property. 
 
 Income taxes may be divided into proportional 
 and graduated. 
 
 Proportional income taxes are such as are levied 
 at a uniform rate upon all incomes regardless of the 
 amount. 20 For example, a tax of one per cent upon 
 all income would be a strictly proportional income 
 tax. The ordinary property tax is proportional when 
 a uniform percentage of tax is levied upon all prop- 
 erty. The Federal Corporation Tax Law, passed in 
 1909, was a proportional tax as to all incomes of cor- 
 porations above $5,000, but was not proportional as 
 to all incomes of corporations because of the distinc- 
 tion between incomes exceeding $5,000 and those of 
 less amount. It is therefore not strictly correct to 
 call any income tax proportional which provides for 
 
 18 . Seligman. The Income Tax in the American Colonies and 
 States. Political Science Quarterly, Vol. 10, p. 247, June, 1895. 
 
 19 . "The income tax is a direct levy by the government upon 
 the income of individual citizens, whether that income is received 
 from labor, industry, investments, real estate, or any other source." 
 New Encyclopedia of Social Reform. 
 
 20 . "A tax may be said to be proportional when the mathemati- 
 cal relation between the amount of the tax and that of the thing 
 taxed remains the same." Seligman, Progressive Taxation in The- 
 ory and Practice, p. 3.
 
 IO INCOME TAXATION 
 
 an exemption, even though the rate may be uniform 
 on all sums above the exemption. 
 
 Graduated income taxes are taxes levied at vary- 
 ing rates proportioned to the amount of income. The 
 term graduated taxation is sometimes used, especially 
 in England, as if it were synonymous with progressive 
 taxation; but progressive taxation is only one variety 
 of graduated taxation. 
 
 Graduated taxes may be divided into progressive, 
 regressive and degressive. 
 
 Progressive income taxes are such as are based 
 upon higher rates as the amount of the income in- 
 creases. The Federal Income Tax Law of June 30, 
 1864, was crudely progressive. 21 According to its pro- 
 visions, 
 
 All income below $600 was exempt 
 
 Over $600 up to $5,000 paid 5% 
 
 " $ 5,000 up to $10,000 paid 7J/2% 
 
 " $10,000 paid 10% 
 
 A progressive tax in the most accurate sense 
 would be one which increased at a geometrical ratio. 
 It has been suggested that a tax, the rate of which 
 increased in arithmetical ratio, should be called a 
 proportional progressive tax; but as these ratios can 
 be used to a very limited extent only, the distinction 
 is not important. 22 
 
 21 . Ch. 173, 116-123. (13 Statutes at Large 223-281.) 
 
 22 . An attempt has been made to illustrate proportional pro- 
 gression in Appendix A, but it will be observed that any exemption 
 of smaller incomes would interfere with the symmetry of the 
 scheme. If the rate from one per cent, to ten per cent, increased 
 continuously and in proportion to each dollar of increase of income, 
 the tax would be represented by the dotted line.
 
 DEFINITIONS 1 1 
 
 Regressive income taxes are such as are based up- 
 on lower rates as the amount of income increases. In 
 general a regressive tax would be the reverse of a 
 progressive tax. For example, if the law of 1864, 
 above referred to, had levied a tax of 10% on incomes 
 of from $600 to $5,000, of l l / 2 % on incomes from 
 $5,000 to $10,000 and 5% on all incomes over $10,000, 
 that would have been a regressive tax. Such taxes 
 are not common, but have been levied occasionally in 
 England and in France. 23 
 
 Degressive income taxes are such as have a diminish- 
 ing rate as the incomes grow smaller reckoning 
 downward from a point where the rate is constant. 
 It will be readily seen that any progressive income tax 
 must eventually reach a point beyond which further 
 progression would be useless and at that point the 
 rate will necessarily become constant, or propor- 
 tional. If the tax is progressive up to that point, it 
 will be degressive from that point downward. The 
 one is the converse of the other. A scale of rates of 
 taxation may be compared to a stairway. Ascend- 
 ing the stairway, the rate is progressive; descending, 
 it is degressive; but it is the same stairway in either 
 case. 2 * 
 
 23 . For example, a tax on incomes, salaries and mortgages 
 was levied by a French ordinance of 1356. Incomes of from 1 to 
 10 livres paid 10 sols; those from 10 to 40 livres paid a tax of 1 
 livre; those from 40 to 100, 2 livres. 
 
 24 . "On a parfois parle, employant un neologisme, de 1'impot 
 degressif. Un impot degressif, c'est un impot progressif regarde 
 par 1'autre cote. L'objet est le meme. L'echelle ne cesse pas d'etre 
 une echelle, elle ne change pas selon que vous la gravissez ou qne 
 vous la descendez." Roche, L'Impot sur le Revenu, p. 263. "De- 
 gressive taxation : Designating or pertaining to a plan of taxation 
 in which the rate is constant on sums above a certain limit, but 
 diminished on sums counted downward below the limit." Webster's
 
 12 INCOME TAXATION 
 
 The proportional rate may be regarded as the 
 normal one and diminishing rates below that are de- 
 gressive. This may be illustrated by the Swedish in- 
 come tax law which has a proportional rate of one 
 per cent for all incomes from 4,000 to 6,000 kroner. 
 From 4,000 kronor downward the rates are rendered 
 degressive by increasingly large abatements from the 
 amount of income taxed; while the tax on incomes 
 above 6,100 kronor is rendered progressive by in- 
 creasing additions to the amount of taxable income 
 until four per cent is reached, after which it again be- 
 comes proportional. 25 
 
 Exemptions. The income tax laws of nearly every 
 country recognize the fact that there is a point, some- 
 times spoken of as "the minimum of existence," be- 
 low which taxation of incomes is inexpedient. It is 
 therefore customary to specify a certain sum at the 
 bottom of the scale which shall not be liable to in- 
 come tax and this sum is commonly called an exemp- 
 tion. The chief argument for such exemptions is that 
 if the State takes away any portion of the money 
 which the working man or poor person needs for 
 
 New International Dictionary. The word "degressive" is not found 
 in the Century nor in Worcester. Its primary meaning is a going 
 down, or descent. It is often used erroneously in the sense of 
 regressive, in which the primary meaning is a movement backward. 
 As examples of the incorrect definition and use of the word we give 
 the following: "Degressive means that a certain amount of taxable 
 income is exempt." ( !) New Encyclopedia of Social Reform. 
 "Practically this amounts to degressive taxation, so-called, namely, 
 the exemption of the minimum of existence." Daniels, Public 
 Finance, p. 89. In Prof. Ely's "Taxation in American States and 
 Cities," p. 77, it is said that "A tax is digressive when a certain 
 sum is exempt from taxation, and the excess, above a certain sum, 
 is taxed at a uniform rate." 
 
 25 . See Chap. X, post. The Swedish kronor is equal to 26.8 
 cents of American money.
 
 DEFINITIONS 13 
 
 actual subsistence, it will have to return it in the form 
 of charity. It is also true that the cost of collection 
 in the case of very small incomes would probably ex- 
 ceed the amount collected. The proposed new in- 
 come tax law in France recognizes the fact that the 
 cost of living in large cities is much greater than in 
 small villages, and proportions the exemption accord- 
 ing to the number of inhabitants of the commune in 
 which the taxpayer resides. The law in Denmark 
 makes a similar distinction. 
 
 It is important to note the difference between 
 granting an exemption of a certain sum for all incomes 
 and the mere exemptions of incomes below a certain 
 amount. In most countries whatever exemption is 
 allowed at the foot of the scale applies to all incomes 
 regardless of amount; so that, if the exemption 
 amounted to $600, the person enjoying an income of 
 $1,000 would pay tax on only $400; while in other 
 countries an exemption of $600 would apply only to 
 incomes of that amount or less, while incomes of 
 more than $600 would be taxed on their full amount 
 as if there were no exemption. In some of the in- 
 come tax laws in this and other countries it is by no 
 means easy to decide which method was intended. 
 
 Abatements. While exemptions are often spoken 
 of as abatements and vice versa it seems desirable that 
 the word exemption should be reserved to designate 
 the portion of income at the foot of the scale which 
 is free from taxation; and abatements should apply to 
 deductions from the income, or tax on income, above 
 that sum. The effect of abatements which diminish 
 in amount as the income grows larger is to give the
 
 14 INCOME TAXATION 
 
 tax a more progressive character than it would otherwise 
 have. For example, the English income tax of 1806 pro- 
 vided for a uniform rate of 10 per cent upon all in- 
 comes. But there was an exemption of 50 and a series 
 of abatements on the amount of tax, which began with 
 100 shillings, 26 (10 per cent of 50) and decreased at 
 the rate of one shilling for every additional pound of in- 
 come up to 150 where the abatements ceased. The 
 effect of these abatements upon the amount of tax will 
 be seen by the following table : 
 
 Income Tax (10%) Abatement Net tax 
 
 50 = 1,000 s. 
 
 100s. 
 
 100s. 
 
 Os. 
 
 
 
 51 = 1,020s. 
 
 102s. 
 
 99s. 
 
 3s. 
 
 0.29 
 
 52 = 1,040s. 
 
 104s. 
 
 98s. 
 
 6s. 
 
 0.57 
 
 53 = 1,060s. 
 
 106s. 
 
 97s. 
 
 9 s. 
 
 0.83 
 
 and so on up to 
 
 
 
 
 
 100 = 2,000 s. 
 
 200s. 
 
 50s. 
 
 150s. 
 
 7.5 
 
 and to 
 
 
 
 
 
 149 = 2,980 s. 
 
 298s. 
 
 Is. 
 
 297s. 
 
 9.9 
 
 150 = 3,000 s. 300 s. 300 s. 10. 
 
 A peculiar feature of this unique plan was that it 
 was an example of strictly arithmetical progression 
 as to incomes of from 50 to 150, the tax increasing 
 at the uniform rate of three shillings for each pound and 
 thus while the rate of taxation was nominally ten per 
 cent, the amount of tax paid varied from less than one 
 per cent to ten percent. 
 
 Examples of diminishing abatements on the 
 amount of income assessed may be found in the case 
 of Sweden, the Grand Duchy of Baden, and the Canton 
 of Zurich. 
 
 26 . The English shilling is equal to 12 d. (pence) or 24 1/3 
 cents of American money. A pound is 20 shillings, and its value is 
 $4.866^.
 
 DEFINITIONS 15 
 
 In several countries special abatements of a fixed 
 sum are allowed for children or other dependents 
 whom the taxpayer has to support, and in some cases 
 even for sickness, accident, business reverses, or other 
 unusual circumstances affecting the taxpayer's in- 
 come. 
 
 Differentiation. This word has acquired a slight- 
 ly technical use in connection with income taxation. 27 
 It is most commonly used in referring to the distinc- 
 tion between "earned and unearned" or "precarious 
 and permanent" income. "Earned" incomes are those 
 which are obtained by personal exertion while "un- 
 earned" incomes are such as are received from invest- 
 ments in property, bonds, etc. 28 It is argued with 
 much force that these forms of income should be 
 differentiated and a lighter tax applied to the earned 
 incomes. In some of the Australian states incomes 
 from property are taxed at double the rate which is 
 applied to incomes from personal exertion. It is 
 probable that, as theories of income taxation are more 
 fully developed, further differentiations along other 
 lines will be introduced. 29 
 
 27 . "Differentiation, as distinguished from graduation, occurs 
 when a different rate is levied on different kinds (as distinguished 
 from different amounts) of income or property." Memorandum of 
 Board of Inland Revenue (England) in Reports from His Majesty's 
 Representatives abroad respecting Graduated Income Taxes in For- 
 eign States, 1905, p. XII. 
 
 28 . Other expressions are : "precarious" and "permanent ;" 
 but, if these words are used as Sir Henry Primrose has pointed 
 out "attention must be concentrated rather on future contingencies 
 which may influence the treatment of income by the prudent holder" 
 than upon the mere effort required to produce income. 
 
 29 . The proposed new French law provides for differentiation 
 in the amount of exemption according to the size of the city or com- 
 mune in which the taxpayers reside, and a similar provision is found 
 in Denmark. In Spain incomes are divided into a great number of 
 classes, without reference to any apparent basis, and varying rates 
 applied to each class.
 
 1 6 INCOME TAXATION 
 
 Supplemental tax and Super-tax. The progressive 
 character of a tax may be accentuated not only by 
 gradually decreasing abatements which start from the 
 bottom of the scale, but also by increasing additions 
 to the rate or to incomes in the higher grades. Per- 
 haps the best example of such additions is found in 
 Sweden, where a one per cent rate is made to yield 
 practically a four per cent tax as the result of arbi- 
 trary additions to the income. But the supplementary 
 
 tax (Ergaenzungssteuer} , as it is applied in Germany, 
 is not such a tax, but rather a separate and distinct 
 
 income tax, lower in rate and more all-inclusive as to 
 income than the general income tax. The French 
 impot complementaire (complementary tax) is very 
 similar in scope. 
 
 A supplemental tax can take the form of a sort of 
 progressive "tax upon a tax," as in the Canton of 
 Schaffhausen, in Switzerland, where a tax is levied 
 upon the amount of income tax, the rate varying from 
 5 per cent on amounts between 26 and 50 francs to 
 50 per cent on amounts over 500 francs ($100). It 
 would seem as though the term super-tax could very 
 properly be applied to a tax which is thus superim- 
 posed upon another; yet the English super-tax is not 
 proportioned to the amount of tax, but to the amount 
 of income. The Finance Bill of 1909, which has met 
 with so much opposition in the British Parliament, 
 contains the following provision : 
 
 In addition to the income tax charged at the rate of one 
 shilling and twopence under this Act, there shall be charged, 
 levied, and paid for the year beginning on the sixth day of 
 April, nineteen hundred and nine, in respect of the income 
 of any individual, the total of which from all sources exceeds 
 five thousand pounds, an additional duty of income tax (in
 
 DEFINITIONS IJ 
 
 this Act referred to as a super-tax) at the rate of sixpence 
 for every pound of the amount by which the total income 
 exceeds three thousand pounds. 
 
 The evident purpose of this law is to collect a 
 proportionally larger amount from the larger incomes 
 without adopting a progressive rate. 
 
 Direct Taxes. The distinction between direct and 
 indirect taxes is one which has occupied the attention 
 of political economists in this country and Europe 
 for many years. Direct taxes are sometimes defined 
 as those which cannot be shifted, but this definition 
 has received much well-deserved criticism. Another 
 line of distinction has been drawn between taxes on 
 production and taxes on consumption the former be- 
 ing termed direct and the latter indirect taxes. A 
 third definition which has more to commend it is as 
 follows : direct taxes are such as are levied with refer- 
 ence to the ability of the taxpayer, as indicated by his 
 property or income, while indirect taxes are such as 
 are levied without reference to the ability of those 
 who may pay them. 30 
 
 Without entering into a discussion of the theories 
 which lie behind these definitions, it may suffice to 
 say that, as a matter of practice, particularly on the 
 European continent, customs, excises and stamp 
 duties are treated as indirect taxes, while taxes levied 
 upon the individual at regular intervals, upon the 
 basis of his property or income are called direct. 
 
 In the following pages the expressions direct and 
 indirect taxation are used in accordance with this 
 practice. 
 
 80 . Fuisting, B. Die Preussischen direkten Steuern. Vol. 4 
 (1902), p. 22. Handbuch der politischen Oekonomie, Vol. 3, p. 176. 
 Ely, Richard T. Taxation in American States and Cities, pp. 67-73. 
 Bullock, Charles J. Direct and indirect taxes in economic literature. 
 Political Science Quarterly, Vol. 13 (Sept. 1898), pp. 442-476.
 
 CHAPTER II. 
 
 AUSTRALASIA. 1 
 
 NEW SOUTH WALES, NEW ZEALAND, QUEENSLAND, SOUTH 
 
 AUSTRALIA, TASMANIA, VICTORIA, WESTERN 
 
 AUSTRALIA. 
 
 There are undoubtedly some people who still have 
 a vague idea of Australia as a half-savage, unde- 
 veloped country, peopled largely by ex-convicts. To 
 such persons it may seem strange that we should go 
 to the Antipodes to begin our study of income taxa- 
 tion; but when it is realized that the Australian Com- 
 monwealth is nearly as large as the United States 
 (excluding Alaska) ; that it has a population of four 
 millions, of whom ninety-seven per cent are of pure 
 British descent and that these people are wealthy, in- 
 telligent, prosperous and progressive to a remarkable 
 
 1 . The term Australasia is used somewhat loosely to designate 
 the continent of Australia and the British Colonies in the Islands of 
 Tasmania, Fiji, New Guinea and New Zealand. Since Jan. 1, 1901, 
 the Australian Commonwealth, consisting of the States of New 
 South Wales, Victoria, South Australia, Queensland, Western Aus- 
 tralia and Tasmania, has had a constitution much resembling that 
 of the United States and it enjoys a large measure of self-govern- 
 ment. New Zealand is situated 1,200 miles from Australia and is an 
 independent colony.
 
 NEW SOUTH WALES 19 
 
 degree, 2 it becomes evident that the experiences of 
 such a country cannot well be ignored. Australia 
 and New Zealand have been called the world's 
 laboratories of political experiment. These countries 
 have become notable in recent years because of their 
 application of State Socialism to many phases of in- 
 dustry. State ownership and operation of railways 
 and telegraphs, progressive taxes on land, incomes, 
 property and inheritances, restrictions upon owner- 
 ship of land, minimum wage laws, old age pensions 
 and courts of industrial conciliation and arbitration, 
 are among some of the radical measures which have 
 been adopted. It is not surprising that the taxation of 
 incomes should meet with favor in such a country and 
 some of the plans which have been adopted present unique 
 and interesting features. 
 
 New South Wales, In this State, under the "Land 
 and Income Tax Act" of 1895, with its numerous 
 amendments, there is a tax of one penny on the pound 
 upon the unimproved value of real estate. The re- 
 ceipts from this tax are supplemented by a propor- 
 tional income tax levied upon incomes not derived 
 from land, or the produce or use of land, at the rate of 
 6 d. in the pound, or two and one-half per cent. This 
 combined tax produces about one-twelfth of the whole 
 revenue, excluding receipts from public utilities con- 
 trolled by the state. 3 The amount exempted is 200 
 ($973.30). There is no differentiation between earned 
 and unearned incomes. The yield of the tax in 1907-8 
 
 2 . f Mr. T, A. Coghlan, Statistician for New South Wales, is 
 authority for the statement that, in production per head, Australasia 
 surpasses any other country for which records are available. 
 
 3 . See testimony of T. A. Coghlan in Report from the Select 
 Committee on Income Tax. (English Blue Book.) Nov., 1906, p, 90.
 
 2O INCOME TAXATION 
 
 was 215,283 ($1,046,367), which is about 20 per cent 
 of the whole amount raised by taxation. 
 
 New Zealand. As in the case of New South Wales, 
 the "Act to regulate the assessment of land and in- 
 come for the purposes of taxation," passed Septem- 
 ber 8, 1891, makes the income tax complementary to 
 a tax on the unimproved value of land, 4 though in 
 New Zealand there is this difference that the land tax 
 is graduated. The income tax applies only to in- 
 comes above 300 ($1,459.95) and the rate is 6 d. in the 
 pound (2y 2 %) on the amount between 300 and 1,300 
 and one shilling (5%) on all above 1,300. The exemp- 
 tion of 300 does not apply to absentees or corpora- 
 tions. In computing incomes the rents and profits 
 derived from the direct use and cultivation of land, as 
 well as interest on mortgages, are not included. Were 
 it not for the exemption of 300, which introduces a 
 slight progression into the rates, it might be said that 
 there were simply two proportional taxes one of 
 %% per cent on incomes under 1,300 and one of 5 
 per cent on all incomes over 1,300. The abrupt 
 doubling of the rate at 1,300 will no doubt result in 
 causing many incomes to be returned as slightly un- 
 der that sum, which are in fact larger. 
 
 The proportions which the income tax bears to 
 land and other taxes will be seen from the following 
 table : 5 
 
 4 . Of the total revenues, amounting in 1908 to 8,766,342, about 
 two-thirds were met by the receipts from customs and from 3 per 
 cent, to 4 per cent, by death duties (inheritance tax). The claim 
 which is often made that New Zealand collects its taxes by means 
 of the "single tax" is not supported by the facts. In 1908, the 
 amount collected by land taxes, both proportional and graduated, 
 was only 6 per cent, of the total revenue and only 45 per cent, of the 
 amount raised by ordinary taxation. 
 
 5 . Statesman's Handbook, 1909, p. 329.
 
 QUEENSLAND 21 
 
 Land Tax Income Tax 
 
 1904 324,991 221,369 ($1,077,182) 6,773,544 
 
 1905 352,854 253,952 ( 1,235,730) 7,022,849 
 
 1906 385,756 261,815 ( 1,273,992) 7,323,570 
 
 1907 447,342 277,867 ( 1,352,101) 8,148,175 
 
 1908 537,846 304,905 ( 1,483,668) 8,766,342 
 
 The total amount of income assessed in 1908 was 
 7,260,713 ($35,330,629.46) and the number of in- 
 come taxpayers 10,420 or 1.17 per cent of the popula- 
 tion. 6 For 1909, the net assessed income, after allow- 
 ing for exemptions, was 7,549,596. The number of 
 income taxpayers was 10,839 and of land taxpayers 
 30,855. It would thus appear that the average in- 
 come of those who paid income tax was 696 ($3,- 
 386.74). The comparatively small number of tax- 
 payers and the high average income are no doubt due 
 to the large exemption. It is a significant fact that in 
 the ten years from 1897-8 to 1907-8, the revenue from 
 income tax increased 212 per cent, while the increase 
 of population during the same period was only 30 per 
 cent. The total cost of assessment and administra- 
 tion for the year 1908-9 was 2.05 per cent, while for 
 the land tax it was 3.82 per cent. 7 
 
 Queensland. The Income Tax Act of 1902 has 
 been amended frequently and the present rates are 
 those fixed by the Amendment Acts of 1906 and 1907. 
 There is a differentiation, not only as to earned and 
 unearned incomes, but also as to "natural persons" 
 and corporations. In order to carry such differentia- 
 
 6 . Sir Arthur P. Douglas. The Dominion of New Zealand, 
 (1909) p. 189. 
 
 7 . New Zealand Official Yearbook, 1909. For a more detailed 
 account of the system of taxation in New Zealand see Seligman, 
 Essays in Taxation, 2nd Ed., p. 314.
 
 22 INCOME TAXATION 
 
 tion into effect, all incomes are divided into three 
 classes which are taxed at different rates as follows : 
 
 a) Income derived from personal exertion: 
 
 Not exceeding 500 ($2,433) 6d. for every pound = 2 l / 2 % a 
 
 Exceeding 500 and not over 1,000 ($4,866.50) 6 d. 
 
 for every pound of the first 500 = 2 l / 2 % 
 
 and 7d. for all over 500 2.9 % 
 
 Exceeding 1,000 and not over 1,500 ($7,230) 7 d. 
 
 for every pound of the first 1,000 = 2 9 % 
 
 and 8 d. for all over 1,000 333% 
 
 Exceeding 1,500 8 d. in the pound = 3.33% 
 
 b) Income from property: 
 
 9 d. in the pound 3.75% 
 
 c) Income of companies and absentees: 
 
 1 shilling in the pound = 5. % 
 
 In the last class there is a provision that, in the 
 case of a company whose head office is in Queens- 
 land, the income is assessed at not less than the 
 amount of dividends declared during the year; and if 
 the profits remain undistributed among the share- 
 holders, the rate is 6 d. in the pound on such undis- 
 tributed profits. 
 
 There is an exemption of 200 ($973.30) which 
 applies only to incomes from personal exertion. If 
 
 8 . Attention should be called to the fact that the percentages 
 given in this and subsequent tables, would be affected by the amount 
 of exemption in all cases where the exemption is applied to all in- 
 comes. In most countries the exemption at the foot of the scale is 
 deducted from all incomes, but in some instances the income above 
 the amount of the exemption is taxed for its full amount, in the 
 same manner as if there had been no exemption. 
 
 In the case of Queensland the 200 are deducted from all in- 
 comes derived from personal exertion regardless of the amount. 
 Thus, for example, if such income amounted to 1,200 the 200 
 would be first deducted, leaving 1,000 and the tax would be 
 
 6 d. on the first 500 = 12 Is. 8 d. 
 
 7 d. on the second 500 == 14 3s. 4 d. 
 
 Total 26 5 s. 
 
 It would thus appear that the amount of tax paid on the whole 
 income of 1,200 was not 2 l / 2 per cent, nor 2.9 per cent., nor the 
 mean between those amounts, but 2.1 per cent. As the amount of 
 tax grows larger the effect of the exemption upon the percentage as 
 applied to total original income is less and less noticeable. For the 
 sake of simplicity it has, therefore, seemed best to give the per- 
 centages as applied to each grade of income as fixed by the law.
 
 QUEENSLAND 23 
 
 the income exceeds 200 and the person has income 
 both from his services and from property, the deduc- 
 tion is made in the first instance from that portion of 
 the income accruing from personal exertion. 
 
 The deductions allowed in computing income are 
 the ordinary expenses of business such as wages, 
 taxes, rent, interest and bad debts written off within 
 the year. The taxpayer is permitted to deduct from 
 his income all sums paid for life insurance up to 50 
 ($243). The method adopted to determine the gross 
 income of a merchant is to add the amount of sales, 
 both cash and credit, to the value of the stock at the 
 end of the year and deduct from it the amount paid 
 for goods during the year plus the value of stock at 
 the beginning of the year. 
 
 Income from dividends is collected at the source 
 and all persons engaged in business or having in- 
 comes of more than 100 are required to make re- 
 turns. Payments of income tax can be made through 
 local banks by simply depositing the amount in the 
 bank to the credit of the commissioner who has 
 charge of the collections. The cost of collection can- 
 not be separated from other expenses, but is probably 
 not over 3 per cent. The financial results for two 
 years were as follows : 
 Year Source of Income AmouMof Amount 
 
 1902-3 Personal exertion 4,819,837 141,894 
 Property 563,613 17,413 
 
 Total 5,383,450 159,307 = $775,187.86 
 1903-4 Personal exertion 5,624,756 144,487 
 Property 414,239 14,196 
 
 Total 6,038,995 158,683 = $772,005.50
 
 24 INCOME TAXATION 
 
 The number of income taxpayers in 1902 was 90,419 
 or 16.7 per cent of the total population of 541,295. 
 
 The totals collected in the years following were: 
 
 1904-5 253,918 1906-7 284,476 
 
 1905-6 264,957 1907-8 271,299 
 
 which would be an average of $1,306,309 per year. 
 The income tax of 1906-7 amounted to 54 per cent of 
 the total revenue from taxation in that year. 
 
 South Australia. By a law passed in 1884, South 
 Australia was the first of the Australian colonies to 
 adopt an income tax. The law makes a sharp dis- 
 tinction between income from property and income 
 from personal exertion, the rate upon the former class 
 of income being nearly double that upon the latter. 
 The rates, as also the exemptions, are varied -fre- 
 quently to meet the fiscal needs of the state. 
 
 Income from personal exertion is taxed : 
 
 On incomes of 800 ($3,893.20) or less, 4^d. in the = 1.87% 
 On incomes of more than 800 7 d. in the = 2.91% 
 
 Income from property is taxed : 
 
 On incomes of 800 or less. 9 d. in the = 3.75% 
 
 On incomes of more than 800 13^d. in the = 5.62^2% 
 
 The income of a company is presumed by law to 
 be derived from property and is taxable at the higher 
 rates and without exemption. 
 
 Incomes which do not amount to 400 ($1,946.60) 
 are entitled to an exemption of 150 9 ($730) ; but 
 such exemption does not apply to incomes of more 
 than 400 nor to incomes of companies or non-resi- 
 dents. The amount of exemption has been changed 
 frequently, having been successively 300, 200, 125, 
 
 9 . Since writing the above we find a note in the Appendix to 
 the Australian Yearbook (p. 1135) to the effect that by the Taxation 
 Amendment Act of 1908 this exemption was increased to 200.
 
 SOUTH AUSTRALIA 25 
 
 150, 135 and 150 pounds. There is a further exemp- 
 tion of all income derived from land which pays land 
 tax providing the income does not exceed 5 per cent 
 of the actual value. Income derived from land which 
 does not exceed 1,000 in unimproved value is not 
 taxed if it is the result of labor on the land. 
 
 Taxpayers are required to make returns of their 
 incomes and the penalty for failing to do so is a fine 
 not exceeding 20 and treble the amount of tax pay- 
 able. False returns are punishable as wilful and cor- 
 rupt perjury. A right of appeal to a local court is 
 given at any time within two months after notice of 
 assessment. The taxes are collected for the most part 
 by salaried government officials. Country postmasters 
 are also allowed to receive the tax and retain a small 
 commission for doing so. The cost of collection is not 
 known as it is blended with the cost of collecting the 
 land tax. The cost of collecting both taxes in 1903-4 
 was a little over 5 per cent of which fully 3 per cent 
 was due to the income tax. 
 
 Financial results. The amount of income tax for 
 the year 1907-8 was 212,643 ($1,034,724.84), which 
 was 55.58 per cent of the total revenue. The rapid 
 and steady increase of the income tax is shown by 
 the amounts collected for the six preceding years, 
 namely: 1901-2, 80,893; 1902-3, 114,720; 1903-4, 
 121,469; 1904-5, 136,866; 1905-6, 128,756; 1906-7, 
 166,582. 
 
 The yield of the tax has fluctuated considerably 
 from year to year, owing to changes of rates and 
 varying financial conditions; but on the whole the 
 tendency has been to increase at the rate of about
 
 26 INCOME TAXATION 
 
 5 per cent a year. The total income assessed in 1902 was 
 7,607,149 ($37,016,387) and the number of income 
 taxpayers 20,009 or 5.14 per cent of the total white 
 population of 369,176. 
 
 Tasmania. There are two systems of direct taxa- 
 tion in Tasmania, each having the central idea of 
 taxation according to financial ability. They are 
 designated as 
 
 a) The income tax proper, and 
 
 b) The "Non-inquisitorial ability tax." 
 
 The first of these applies to those persons or com- 
 panies whose incomes are derived from property or 
 investments. The second is restricted to those who 
 derive their income from personal exertion. The 
 modified scheme of income tax proper, now in force, 
 is supplementary to the land tax and to the non- 
 inquisitorial tax, and these taxes are planned in such 
 a way as to avoid overlapping or interference. For 
 example, incomes derived by a taxpaper from land 
 liable to the land tax, or from dividends declared by 
 companies liable to taxation, are not included in the 
 income tax return. 
 
 All "incomes proper" are divided into three 
 classes: 
 
 1. Income of companies. 
 
 2. Income of persons, derived from property. 
 
 3. Dividends not included in either of the above 
 classes. 
 
 The rate is one shilling in the pound (5%), but the 
 tax is made progressive in the lower grades by a 
 series of abatements, as will be seen by the following 
 table :
 
 TASMANIA 27 
 
 Income 
 Under 100 exempt 
 
 Abatement 
 
 Resulting 
 percentage 
 of Tax 
 
 100 to 110 
 
 80 
 
 1. to 1.36 
 
 110 120 
 
 70 
 
 1.84 2.08 
 
 120 150 
 
 60 
 
 2.50 3. 
 
 150 200 
 
 50 
 
 3.33 3.75 
 
 200 250 
 
 40 
 
 4. 4.2 
 
 250 300 
 
 30 
 
 4.40 4.5 
 
 300 350 
 
 20 
 
 4.66 4.71 
 
 350 400 
 400 and over 
 
 10 
 None 
 
 4.85 4.87 
 5. 
 
 The above abatements do not apply to incomes 
 from companies or from prizes in lotteries. In 1904 
 the number of persons subject to the tax was 1,522, 
 and the amount of income assessed was 229,237, 
 which constituted 2.75 per cent of the total income of 
 the colony. The amount of income tax collected in 
 1904-5, was estimated at 51,400 ($250,112.40). 
 
 The "non-inquisitorial ability tax" is intended to 
 reach incomes from personal exertion, the amount of 
 such incomes being determined by reference to the 
 amount which the taxpayer pays, or is presumed to 
 pay, for his habitation. It is claimed that there is a 
 constant relation, within certain curves of gradua- 
 tion, between the income of an individual and the an- 
 nual rental which he pays, as follows : 
 
 1. As to occupiers of ordinary dwellings, the in- 
 come bears nearly the relation of seven to one. 
 
 2. As to ordinary adult lodgers the proportion 
 which the amount annually expended on board and 
 lodging bears to the whole income is about two to 
 one in the lower incomes and about four to one in the 
 higher incomes. 
 
 3. For farmers and others, whose business re- 
 quires the possession of a larger amount of real estate
 
 28 
 
 INCOME TAXATION 
 
 and whose buildings are inseparable from the land, 
 the rental may amount to one-third of the income 
 derived from the business, in case the culture is in- 
 tense, or three-fourths of the income if a large area 
 is needed, as in sheep raising. 
 
 The relation which rental bears to income was as- 
 certained to be as follows: 
 
 With incomes of 50 the rent amounts to 10 or 1/5. 
 
 
 
 78 
 
 
 
 
 150 
 
 
 
 
 210 
 
 
 
 
 400 
 
 
 
 
 630 
 
 
 
 
 900 
 
 
 
 
 1,100 
 
 
 
 
 1,500 
 
 
 
 13 ' 
 25 
 30 
 50 
 70 
 90 
 100 
 125 
 
 1/6. 
 1/6. 
 1/7. 
 1/8. 
 1/9. 
 1/10. 
 1/11. 
 1/12. 
 
 Based upon this table the "ability" taxpayers are 
 divided into three groups as follows : 
 
 A. Ordinary occupiers of dwellings, 
 
 B. Boarders or lodgers, 
 
 C. Farmers and business men. 
 
 The incomes having been ascertained by reference 
 to rentals as above explained, and an abatement or 
 exemption of 30 having been allowed in each case, 
 a low progressive rate is levied on all incomes over 
 60, the rate varying from Id. on 60 to 6d. (2.5%) 
 on all over 400. Incomes, in classes A and B under 
 60, pay a fixed sum of two and one-half pounds, 
 while in class C incomes of less than 50 pay the same 
 amount. 
 
 It was estimated in 1905, that the number of "bread- 
 winners" in the state was 76,800 and that 47,423, or 
 61.76%, would be subject to the ability tax. The esti- 
 mated amount of the tax was 35,143 ($171,000), and 
 the actual yield 33,517.
 
 VICTORIA 29 
 
 Many advantages are claimed for this form of tax 
 as will be seen by the following extracts from an 
 official report : 
 
 It is unlike the income tax in its entire freedom from 
 doubt as to the amount of the tax which, according to rela- 
 tive financial ability, should be levied upon each adult bread- 
 winner, and particularly so in its almost entire freedom from 
 the inquisitorial features of prying into the private business 
 affairs of the taxpayer as regards the nature and source of 
 his income or lack of income. 
 
 It prevents dishonest taxpayers from presenting fraudu- 
 lent statements with the view of evading their fair share of 
 the tax, thereby involving the honest taxpayers in a heavier 
 tax rate, in order to make good such dishonest leakages of 
 revenue. 
 
 It is estimated that by this non-inquisitorial method of 
 assessing the financial ability of the taxpayer, a truer ap- 
 proximation to the ideal of taxation, in proportion to the 
 revenue of rich and poor respectively, will be attained than 
 by any form of inquisitorial income tax that has yet been 
 devised. 
 
 Above all, it does not aim at reaching the full normal 
 limit of the actual yearly income of the taxpayer, but is de- 
 signed rather to fall short of it by means of a uniform abate- 
 ment, and it is simple and inexpensive in collection. 10 
 
 In the year 1907-8 the combined yield of the in- 
 come tax proper and the non-inquisitorial tax was 
 101,433 ($493,563) which was 3.06 per cent of the 
 state taxes. 
 
 Victoria. The income tax law of Victoria is not 
 complicated with the land tax as in the other colonies, 
 and it possesses some peculiar features which it may 
 be worth while to consider more in detail. 
 
 10 . Graduated Income Tax (Colonies). Return to an address of 
 the Honorable the House of Commons, showing which of the Col- 
 onies have established systems of graduated income tax, etc. Colo- 
 nial Office, June, 1905. No. 196. In this publication 71 quarto pages 
 are given to Tasmania.
 
 3O INCOME TAXATION 
 
 As in the case of the English income tax law of 
 1842, the tax was first levied in 1895, for a period of 
 three years, to meet a temporary deficiency; but at 
 the end of that time was continued as a permanent 
 fiscal measure. All incomes are divided into two 
 classes, those from personal exertion and those from 
 property. The rates are fixed for each year by an 
 "Income Tax Rate Act," and for the year 1909 they 
 were as follows : 
 
 a. For natural persons, 
 
 1. Income from personal exertion 
 
 up to 500 ($2,433.25) 3 d. on the = 1.25% 
 
 Over 500 up to 1,000 ($4,866.50) . .4 d. " " " = 1.66% 
 
 1,000 up to 1,500 ($7,299.75). 5 d. " " " = 2.08% 
 
 " 1,500 6d. " " " = 2.50% 
 
 2. Income from property double the above rates. 
 
 b. For companies (except life insurance) .7 d. on the = 2.91% 
 Life insurance companies 8 d. on the = 3.33% 
 
 Incomes of ship-owners from shipments out of 
 Victoria are taxed 5 per cent. In 1909 a rebate of 20 
 per cent was allowed to persons, but not to com- 
 panies. 
 
 An exemption of 150 ($729.97) is allowed to per- 
 sons whose incomes are between 200 and 500. In- 
 comes of less than 200 ($973.30) are not assessed. 
 The above exemptions do not apply to incomes above 
 500, nor to companies. 
 
 Probate and succession duties are levied accord- 
 ing to a graduated scale ranging from \y 2 per cent to 
 10 per cent and recipients of legacies and bequests 
 are not required to include them in their returns of 
 income. 11 
 
 11 . Graduated Income Tax (Colonies) op. tit. (see note 10).
 
 VICTORIA ^I 
 
 The deductions allowed from income are quite 
 liberal and are as follows : "Interest paid on mort- 
 gage of property, repairs to property or plant, but not 
 including cost of additions or improvements, taxes, 
 fire insurance, fidelity guaranty, etc., premiums not 
 exceeding 50, gifts exceeding 20 each to public or 
 charitable institutions, calls or contributions paid into 
 companies in liquidation or mining companies carry- 
 ing on operations in Victoria, rent of business prem- 
 ises and salaries to employees, bad debts, deprecia- 
 tion and wear and tear of machinery, implements, 
 etc., used for the purpose of trade, cost of sustenance 
 of employees, when supplied in addition to wages or 
 salary of such employees, and losses incurred in the 
 production of income." No deduction is allowed for 
 the cost of maintenance of the family of a taxpayer. 
 
 As to the administration of the tax there are the 
 usual requirements of a declaration of income on the 
 part of each taxpayer, which may be sent to the Com- 
 missioner of Taxes through the mails free of postage. 
 There is no collection at the source except in so far 
 as the companies pay income taxes which would 
 otherwise be payable by the stockholders individual- 
 ly; but the income tax office has a system of checking 
 returns by means of information carefully secured 
 and tabulated in reference to interest, rents, salaries, 
 etc., which is a material aid in preventing fraud. 
 
 The financial results may be seen by the follo^-ing 
 table of income taxes collected for a period of five 
 years (pounds and shillings reduced to American cur- 
 rency) : 12 
 
 12 . See Consular Report in Congressional Record, Vol. 45, p. 
 1110.
 
 32 INCOME TAXATION 
 
 Year 
 
 Tax on Income 
 from personal 
 exertion. 
 
 Tax on Income T < 1 T Average per 
 from Property Taxpayer 
 
 1904 
 
 $ 971,927 
 
 $549,573 
 
 $1,521,500 
 
 $31.60 
 
 1905 
 
 1,122,881 
 
 437,449 
 
 1,560,330 
 
 34.70 
 
 1906 
 
 1,106,106 
 
 444,466 
 
 1,550,773 
 
 33.99 
 
 1907 
 
 1,256,107 
 
 458,127 
 
 1,714,234 
 
 49.77 
 
 1908 
 
 1,100,466 
 
 360,589 
 
 1,461,055 
 
 42.07 
 
 The average number of income taxpayers for the 
 same period was 45,548 or 3.6 per cent of the popula- 
 tion of 1907. That the number is not larger is no 
 doubt due to the comparatively large exemption, and 
 the fact that 23 per cent of the tax was paid by com- 
 panies. If the revenues of the state from railroads, 
 street cars, waterworks and other public utilities 
 owned by the state are deducted, it will be found that 
 the income tax contributed about one-eighth of the 
 total revenue, 13 and 32.3 per cent of the amount raised 
 by taxation. 
 
 The cost of collection for the year ending June 30, 
 1908, was $67,545.65, or a little over 4 per cent. This 
 is somewhat higher than usual, but it has been found 
 that money expended in securing a more thorough 
 administration of the tax was many times repaid by 
 the increase in the amount of tax collected. 
 
 The distinction between income from personal 
 exertion and that from property is not always easy. 
 For example, many of the farmers own the land which 
 they cultivate, so that their income is the joint pro- 
 duct of labor and property, and in such cases the line 
 is not easily drawn. In the practical administration 
 of the law this difficulty is met by assuming that a 
 
 13 . Report from the Select Committee on the Income Tax with 
 the proceedings of the Committee (England), 1906. No. 365, p. 90. 
 See also Official Yearbook of the Commonwealth of Australia, No. 
 2, 1909, pp. 822 and 837.
 
 WESTERN AUSTRALIA 33 
 
 reasonable interest on the estimated value of the land 
 is the amount of income from property and that the 
 remainder may be fairly ascribed to personal exer- 
 tion. 
 
 Western 'Australia. On the 20th of December, 1907, 
 the first income tax law in Western Australia was 
 passed under the title of the Land and Income Tax 
 Assessment Act and, on the same day, the so-called 
 Land Tax and Income Tax Act was passed, declar- 
 ing rates for the year ending June 3, 1908. Under the 
 first named Act taxes in excess of one pound were 
 payable in two equal half-yearly instalments. Under 
 the second Act only half the tax levied for 1907-8 was 
 required to be collected. The result was that the two 
 laws became effectual on January 1, 1908. The rate 
 is proportional at 4 d. in the pound (1 2/3%) on all 
 incomes in excess of 200. There is a supplementary 
 tax of fifty per cent of the general income tax on the 
 income of any person who has not been a resident of 
 the Commonwealth during any part of the year pre- 
 ceding the year of assessment unless he has been 
 absent on public services. 
 
 The exemptions comprise : 
 
 a. Incomes not exceeding 200 per annum. 
 
 b. Revenues of municipal corporations, etc. 
 
 c. The incomes of life insurance companies and 
 companies not engaged in business for profit. 
 
 d. Dividends of companies subject to duty under 
 the Dividend Duties Act and of the Government Sav- 
 ings Bank and the Agricultural Bank. 
 
 e. Income of the Governor of the State and all 
 religious, charitable and educational institutions.
 
 34 INCOME TAXATION 
 
 f. Incomes from government debentures. 
 
 g. Income derived from land on which land tax 
 is payable. 
 
 Among the deductions and abatements are costs 
 of repairs and expenses of producing income; life in- 
 surance to the amount of 50; the amount paid to a 
 taxpayer's sons and daughters over the age of six- 
 teen years who are employed in the taxpayer's busi- 
 ness; and a sum representing 10 for each child under 
 the age of sixteen residing with, and dependent upon 
 the taxpayer. 
 
 In addition to the income tax there is a Dividend 
 Duties Act, which was passed December 20, 1902, and 
 amended in 1906. This act requires that within seven 
 days after the declaration of a dividend by a company, 
 such company shall pay the Colonial Treasurer a duty 
 equal to one shilling for every pound (5%) of the 
 amount of such dividend. Insurance companies, 
 other than life insurance companies, are required to 
 pay one per cent of their premiums, and shipping 
 companies pay five per cent on all inward and out- 
 ward traffic, including passenger fares and five per 
 cent of the profits on sales of coal or other goods. It 
 should perhaps be mentioned that Western Australia 
 has a tax on the "unimproved value" of land. The 
 rate is one penny in the pound, or four-tenths of one 
 per cent. 
 
 The amount of income tax proper in 1907-8 was 
 5,933, while the dividend tax amounted to 108,034, 
 making a total of 113,967 ($554,563). This amount 
 constituted 41 per cent of the whole revenue from 
 taxation for the same year, but only a small portion 
 of the income tax was collected, as the Act did not 
 take effect till January 1, 1908.
 
 AUSTRIA, BELGIUM, BRITISH COLUMBIA, 
 
 CANADA, CAPE OF GOOD HOPE, 
 
 DENMARK. 
 
 AUSTRIA. 
 
 The beginning of income taxation in Austria may 
 be found as far back as 1702, when a law \vas passed 
 requiring a declaration on the part of the taxpayer, 
 providing for collection at source and for the exemp- 
 tion of property and income below a certain amount. 
 From 1799 to 1829, personal property was reached 
 by class taxes (Klassensteuerri) which were graduated 
 at first according to the occupation or social standing 
 of the individual and afterwards in proportion to 
 wealth. These taxes were levied upon a progressive 
 scale in accordance with which persons having from 
 100 florins ($50) to 150,000 florins ($75,000) were 
 taxed at rates which increased gradually from two 
 per cent to twenty per cent. An ordinance of Octo- 
 ber 5, 1829, abolished this progressive feature how- 
 ever and other levies, more in the nature of a general 
 property tax, were substituted. 
 
 In 1848, as a result of the political disturbances 
 and financial depression, many reforms were at-
 
 36 INCOME TAXATION 
 
 tempted, not the least important of which was a law 
 passed October 29, 1849, which provided for a general 
 income tax. Like the English income tax law of 
 1842, it was originally designed as a temporary ex- 
 pedient to meet the extraordinary needs of the State. 
 Although the preamble of the law contained a recital 
 to the effect that it should apply to the year 1850 only, 
 as a matter of fact it remained in force for nearly half 
 a century and forms the basis of the present law, 
 which was passed in 1896, and went into effect Janu- 
 ary 1, 1898. During this long period the law of 1849 
 experienced many changes and eventually became so 
 involved and complicated that as one writer ex- 
 presses it "it was full of contradictions and make- 
 shifts." 
 
 As a fiscal measure it fell far short of expectations 
 and it was always looked upon with great disfavor by 
 the tax-paying public. The causes of its unpopularity 
 are not far to seek. Instead of being introduced at a 
 low rate and as a substitute for some undesirable and 
 unpopular tax, it was imposed in the first instance at 
 excessively high rates and without any promise of re- 
 duction in other taxes. It is therefore not surprising 
 that a great number of the taxpayers looked upon the 
 tax as an oppressive and unreasonable burden which 
 they were justified in evading so far as possible. There 
 grew out of this state of affairs a continuous struggle 
 between those upon whom the tax bore most heavily 
 and the officials who were attempting to enforce the 
 tax. The conflict might have led to serious conse- 
 quences had the contending parties not finally reached 
 a tacit understanding that a certain moderate amount
 
 AUSTRIA 37 
 
 of deceit and undervaluation would be tolerated. But, 
 as the amounts of certain classes of income, such as 
 salaries, pensions and dividends, which were easily 
 collectable at source, were well known, evasion in 
 such cases was impossible and the burden of the tax 
 was therefore very unequally distributed. The citi- 
 zens who were taxed upon the full amount of their in- 
 comes, were placed at a great disadvantage as com- 
 pared with others who found means to escape the tax. 
 These unfortunate conditions have operated to render 
 the administration of the new law of 1896 more diffi- 
 cult than it otherwise would have been. The Minister 
 of Finance has found it necessary to make a strong 
 effort to develope the tax-conscience (Steuermoral) 
 of the people, and the more liberal provisions of the 
 new law have tended to make that effort successful. 
 
 Without going into full details the following brief 
 statement of a few of the chief features of the present 
 law may be of interest: 
 
 Definition of income. Taxable income is defined 
 as the sum of all receipts in money, or objects having 
 money value, accruing to the taxpayer. This includes 
 the rent of a house occupied by the owner, or of a 
 house for which he does not pay rent; it includes also 
 the value of one's own produce which is consumed by 
 the members of the household, first deducting all ex- 
 penses incurred in getting, maintaining and preserv- 
 ing 1 the said produce and all interest paid on indebted- 
 
 1 . In the form for the declaration the idea conveyed is some- 
 what broader, a deduction being permitted of all sums expended for 
 the "production, protection and conservation of the income." These 
 rather indefinite terms have opened the doors for much fraud and 
 evasion, and Victor Marce, in his monograph upon L' Impot sur le
 
 38 INCOME TAXATION 
 
 ness. Receipts from legacies, insurance and gifts are 
 not treated as income, but as additions to capital. 
 There may be deducted from income, moneys paid 
 for insurance (but only to a limited extent) and no 
 allowance can be made for expenses which tend to in- 
 crease one's capital, or for loss of capital. 
 
 Rates of taxation. Incomes of less than 1,200 
 crowns (Kronen) 2 are exempt. For the first class in 
 the scale, comprising incomes of from 1,200 to 1,250 
 crowns inclusive, the tax amounts to 7 crowns 20 
 heller; and as the incomes increase, the rate is grad- 
 ually raised until, for incomes of from 92,000 to 96,000 
 crowns, it reaches 3,720 crowns. From 96,000 to 
 200,000 crowns there is an increase in rate of 200 
 crowns for every 4,000 crowns of income. From 
 200,000 to 210,000 crowns the tax is 9,300 crowns; 
 and from 210,000 crowns upwards the rate of tax in- 
 creases 500 crowns for each 10,000 crowns of income. 3 
 
 Revenu en Autriche, has characterized them as "formule vague, 
 elastique, gut prete ou a I'arbitraire de la part du fiscou a la fraude 
 de la part du contribuable, ou si I'un et I'autre sont pleins de bonne 
 volonte, s'ils veulent faire ou contrdler une declaration en pleine 
 conscience, le fisc et la contribuable doivent etre dans I'embarras le 
 plus grand pour resoudre en chiffres un probleme aussi delicat." 
 
 2 . An Austrian krone is practically one-half of a gulden or 
 20.3 cents. The krone is the equivalent in value of 100 heller and 
 the heller is therefore worth about 1/5 of a cent. Some of the older 
 statistics are given in florins. The value of the Austrian florin 
 (gold) was 48.2 cents, but it has not been coined since 1892. The 
 silver florin is of the same value as the gulden and is equivalent to 
 two crowns or about 40.6 cents. The value of the gold florin was 
 48.2 cents, but it has not been coined since 1892. It should be re- 
 membered that the values of foreign coins as expressed in American 
 money are not stable, but they are subject to slight fluctuations. The 
 values adopted in this book are those fixed by the Treasury Depart- 
 ment of the United States, as given in Vandergriff's U. S. Tariff for 
 1909, pp. 26-27. 
 
 3 . The total scale, up to 96,000 crowns, comprises 65 grades and 
 is given in full in Appendix D.
 
 AUSTRIA 
 
 39 
 
 An analysis of these rates will show that they are 
 asymptotic, that is, continually approaching, but never 
 quite reaching-, the five per cent limit. Reduced to 
 percentages we find that 
 
 1,200 crowns ($ 240) would pay a tax of 0.6 per cent. 
 
 2,000 ' 
 
 ( 400) 
 
 
 
 
 1. ' 
 
 
 6,000 ' 
 
 ( 1,200) 
 
 
 
 
 2. ' 
 
 
 20,000 
 
 ( 4,000) 
 
 
 
 
 3. ' 
 
 
 60,000 
 
 ( 12,000) " 
 
 
 
 
 3.5 ' 
 
 
 96,000 
 
 ( 19.200) 
 
 
 
 
 4. ' 
 
 
 From this point the rate increases more slowly, 
 never quite reaching five per cent. 
 
 Abatements. Heads of families, whose incomes 
 do not exceed 4,000 crowns, are entitled to a reduc- 
 tion of one-twentieth of their income for each mem- 
 ber of the family above two (wife not counted) who 
 is entirely dependent upon them for support. The 
 effect of such abatement in any case, whether much 
 or little, is to put the taxpayer at least one grade 
 lower in respect of income. There is a further pro- 
 vision that taxpayers, with incomes of less than 10,000 
 crowns, who suffer serious losses by sickness, acci- 
 dent or misfortune, may have their taxable income 
 lowered to an amount not to exceed three grades or 
 classes. But these abatements are somewhat counter- 
 balanced by the fact that the family and not the in- 
 dividual is the real fiscal unit. The result is, that 
 while no member of the family may have an income 
 equal to the exemption, the combined incomes may 
 be sufficient to incur a considerable tax. 
 
 Administration. For every political district and 
 city of over 10,000 inhabitants an assessment com- 
 mission is provided whose duty it is to determine the 
 amount of income of each "Personaleinkommensteuer- 
 pflichtigen" (individual-liable-to-income-tax). The num-
 
 4 INCOME TAXATION 
 
 her of members of the commission is determined by the 
 Minister of Finance who names the chairman and one- 
 half of the members. The other half of the members 
 are elected by the taxpayers. 
 
 There is a Berufungskommission, or Appeal Board, 
 to which both the Assessment Board and the person 
 assessed may appeal. In case of dissatisfaction with 
 the decision of the Appeal Board, a second appeal 
 may be had to the courts. Agreements that the in- 
 come tax shall be paid by any other person than the 
 one properly liable therefor are not legally enforce- 
 able. False statements made in the declarations, or 
 orally, by means of which reductions in the tax are 
 obtained, are punished by a fine of from three to nine 
 times the amount by which the tax was thus im- 
 properly reduced. There is also a penalty, which may 
 amount to a fine of 2,000 crowns, or three months im- 
 prisonment, upon the officials concerned with the as- 
 sessment and collection of the tax, for improperly 
 divulging the information which they obtain as to in- 
 come. 4 The tax is payable in two instalments, one 
 on June first and one on December first. 
 
 The taxpayer is required to give a detailed list of 
 his receipts from all sources and if, after official notifi- 
 cation, he still fails to make the proper declaration, 
 he is subject to a fine of 200 crowns. In default of a 
 declaration, the officials are authorized to resort to 
 other sources of information and make an estimate 
 
 4 . Reisch. Das Gesetz vom 25ten Oktober R. G. B. 1. Be- 
 treffend die direkten Personalsteuern, 1905. See also R. Sieghart, 
 The Reform of Direct Taxation in Austria, Economic Journal, VIII 
 (1898) p. 173.
 
 AUSTRIA 41 
 
 based largely upon les signes exteneurs. Of these ex- 
 terior signs the rent paid by the taxpayer for his 
 habitation is considered most significant and it is cus- 
 tomary to estimate the income at a sum equal to five 
 times the amount of such rent. The officials do not 
 have the right to examine the taxpayer's books of ac- 
 count, but any citizen may produce his books before 
 the Commissioners in support of the facts stated in 
 his declaration. 
 
 Supplementary tax on salaries. 5 In addition to the 
 general income tax, all persons who receive from the 
 State, or corporations, or individuals, an annual 
 salary or allowance amounting to 6,400 crowns or 
 more, are subject to a supplementary tax. The scale 
 of rates is progressive, rising from fourth-tenths of 
 one per cent on incomes from 6,400 to 8,000 crowns 
 to six per cent on incomes of 30,000 crowns or more. 
 The person or corporation who pays the salary is re- 
 quired to retain the tax for each month and turn it 
 over to the Government within fourteen days from 
 the last day of the month. 
 
 The relative importance of the Austrian income 
 tax as a fiscal measure is shown by the budget of 
 1908, in which the total receipts of the Kingdom are 
 estimated at 2,149,000,000 crowns, or $529,800,000. 
 Of this sum 323,500,000 crowns ($64,700,000) were 
 
 5 . "Besoldungsteuer von hoeheren Dienstbezuegen." In 1899 
 this tax was paid by 8,700 persons, of whom 3,800 were in the class 
 having salaries of 6,400 to 8,000 crowns; 1,295 in the class having 
 salaries between 8,000 and 9,000 crowns ; 813 in the class 9,000-10,000 
 crowns; 1,038 in the class 10,000-12,000 crowns and from this point 
 the number steadily diminished until for the highest class, having 
 salaries over 30,000 crowns there were only 125 taxpayers. Regime 
 Fiscal des Valeurs Mobilieres en Europe (Jobit) 2 Vols. Published 
 by French Ministry of Finance 1901, Vol. 1, p. 156.
 
 4 2 INCOME TAXATION 
 
 levied as "direct taxes" including 60,900,000 crowns 
 ($12,180,000) for the income tax. 6 It thus appears 
 that the income tax contributed only about 2.8 per 
 cent of the total revenue and 18.8 per cent of the direct 
 taxes. 
 
 It must be admitted, however, that in spite of the 
 unpopularity of the law, the amount collected by in- 
 come taxation in Austria has been increasing at a 
 more rapid ratio than the tax-paying population. The 
 amount of taxable income increased 25 per cent in the 
 years 1898 to 1903, and 19 per cent from 1903 to 1907. 
 The total increase in amount of income for the ten years 
 1898 to 1907 inclusive was 49 per cent, while the in- 
 crease in the number of taxpayers for the same period 
 was 36 per cent. 
 
 The amount of the yield of the income tax was, 7 
 
 for 1904, 57,298,194 Cr. ( 
 
 1905, 58,469,660 " ($11,693,932) 
 
 1906, 63,496,685 " ( 
 
 11,459,639) 
 
 12,699,337) 
 
 " 1907, 65,346,945 " ($13,069,389) 
 
 In 1907 the total income returned was 3,927,631,- 
 661 crowns, which was reduced by various exemp- 
 tions and abatements to 3,434,355,573 crowns ($686,- 
 871.115). The number of income taxpayers was 
 1,048,689, or 3.78 per cent of the population. If the 
 families of these taxpayers were included, the num- 
 ber would be 3,179,435 or 11.47 per cent of the popu- 
 lation. It would therefore appear that the average 
 income of each taxpayer was 3,275 crowns, or $655. 
 
 6 . Handwoerterbuch der Staatswissenschaften, 3d Ed. 1909, 
 Vol. Ill, p. 730. 
 
 7 . Mittheilung des K. K. Finanz-Ministeriums, 1908. Vol. 14, 
 p. 1081. This book contains a great amount of detailed statistics 
 regarding the Austrian income tax, but is not well arranged, nor are 
 the statistics sufficiently summarized.
 
 AUSTRIA 
 
 43 
 
 The average amount of income tax paid by each tax- 
 payer was 62.31 crowns ($12.46) or an average of 
 2.36 crowns (47c) for each person in the Kingdom. 
 The average percentage of the whole income tax to 
 total amount of income returned was 1.90 per cent. 8 
 
 A classification of the tax in 1907, according to 
 amount of income returned, shows that the number 
 whose income was 
 
 less than 1,800 crowns ($ 360) was 496,949 or 47.39% 
 
 between 
 
 1,800 and 3,600 Cr. 
 
 ( 720) 
 
 362,028 
 
 34.52% 
 
 3,600 " 7,200 " 
 
 (' M40) 
 
 130,707 
 
 12.46% 
 
 7,200 " 12,000 " 
 
 ( 2,400) 
 
 33,478 
 
 3.20% 
 
 12,000 40,000 " 
 
 ( 8,000) 
 
 21,294 
 
 2.03% 
 
 40,000 " 200,000 " 
 
 ( ,40,000) 
 
 3,874 
 
 .37% 
 
 200,000 
 
 
 359 
 
 .03% 
 
 over 
 
 Total 1,048,689 100. % 
 
 The taxpayers having incomes from 40,000 to 
 200,000 crowns, although constituting a trifle over a 
 third of one per cent of the whole number, paid nearly 
 17 per cent of the whole tax; while the highest class, 
 which constituted only three one-hundredths of one 
 per cent, paid 13.36 per cent of the whole tax. In 
 1905, according to M. Berthelemy, 81.76 per cent of 
 the income taxpayers paid only 23 per cent of the 
 total tax, while 5^2 per cent of them paid 60 per cent 
 of the tax. The 5^ per cent who paid 60 per cent of 
 the tax constituted only t\vo-tenths of one per cent of 
 the whole population of the country. 9 
 
 There is some divergence of opinion among emi- 
 nent authorities as to whether or not the Austrian in- 
 come tax can be considered a success. Among the 
 
 8 . Die Ergebnisse der Einkommensteuerstatistik in Oesterreich, 
 by Dr. Friederich Leiter, 1907, p. 39. 
 
 9 . Berthelemy. Bulletin de la Societe de Legislation comparee. 
 March, 1907, p. 129.
 
 44 INCOME TAXATION 
 
 higher officials of the government the opinion seems 
 to prevail that the law is fairly satisfactory. Baron 
 von Stoerck, President of the General Association of 
 Agricultural Societies in Austria, has said: 
 
 In regard to the personal income tax I wish to say that 
 it gives general satisfaction. Complaints regarding evasion 
 of the tax are not frequent. The administration of the law 
 does not meet with any particular difficulty and the people 
 have become reconciled to it. 
 
 Dr. Friederich von Wieser, a professor in the 
 German University at Prague, who has made a care- 
 ful study of the Austrian systems of taxing incomes, 
 is not so optimistic. He says : 
 
 The principal difficulties are such that the best of ad- 
 ministrations cannot surmount them at the first attempt. 
 They consist in the passive opposition of the poorer classes ; 
 the shrewd and effective opposition of the wealthier tax- 
 payers, whose widely extended financial activities favor con- 
 cealment ; the great difficulty of valuing the income of the 
 farmer ; and lastly, the practical invisibility of certain forms 
 of personal income. 10 
 
 In any case it must be conceded that the income 
 tax has not met with so great a measure of success in 
 Austria as in Prussia and some other neighboring 
 states and this is no doubt due both to inherent de- 
 fects in the law itself and to the peculiar conditions 
 under which it is administered. 
 
 BELGIUM. 
 
 It is often said that Belgium is one of the few 
 European countries which does not have an income 
 tax. This statement is true so far as the general 
 
 10 . Dr. Friederich Freiherr von Wieser. Die Ergebnisse und 
 die Ansichten der Personaleinkommensteuer in Oesterreich, 1901.
 
 BELGIUM 45 
 
 Government is concerned, but in the Province of 
 Brabant, there are 77' Communes out of a total of 344, 
 which levy local taxes based upon income. The 
 method followed in all but one of the Communes may 
 be briefly outlined as follows : 
 
 The Communal Council is required to ascertain 
 "le revenu presume" the probable or presumable in- 
 come of each person in the commune (except work- 
 ing men who are exempt from the tax). In order to 
 accomplish this, the council is expected to estimate 
 the personal income of the individual as it is indicated 
 by his salary, business, profits, character of his resi- 
 dence, value of his furniture, manner of living, etc. 
 Upon the basis of the information obtained by the 
 Council a role de cotizations, or assessment roll, is 
 prepared which is open to inspection by the tax- 
 payers, for at least fifteen days. The Council act as a 
 sort of board of review, and make a report of their 
 proceedings to the Deputation permanente which also 
 reviews the assessment and, if it is found correct, 
 makes an order rendering it executory. To ascertain 
 the rate, the amount of tax to be raised is divided by 
 the total taxable income. Thus, if 2,000 francs were 
 the amount of tax and the total income assessed were 
 400,000 francs the rate would be one-half of one per 
 cent. 
 
 This communal tax is not designed to produce 
 any large amount of revenue ; but is looked upon as 
 sort of a convenient "stop-gap" to meet any deficiency 
 which may remain in the communal budget after all 
 the usual sources of revenue have been utilized.
 
 4 6 
 
 INCOME TAXATION 
 
 In the Commune of Ixelles there is a graduated 
 tax based upon income, but the method of ascertain- 
 ing the approximate income is quite novel. The 
 amount of income is not determined by exterior signs, 
 as in the other communes; but is based upon the 
 amount of personal property tax paid to the general 
 government. If the amount thus paid is less than 
 400 francs ($77.20) it is multiplied by 60; if between 
 400 and 800 francs ($154.40), by 55; if between 800 
 and 1,200 francs ($231.60), by 50 and if above 1,200 
 francs, by 45. The product in each case is "le revenu 
 presume," or assumed income. The object of the re- 
 gressive method of determining income is not quite 
 apparent; but the result of such a method is partly 
 counter-balanced by the accompanying exemption 
 and the abatements. The first 1,000 francs ($193) of 
 income is exempt, and there is a uniform rate of one 
 per cent. 
 
 The second 1,000 fr. is taxed upon only 2/10 or 200 fr. 
 
 ' third 1,000 
 
 
 
 
 
 3/10 
 
 300 
 
 
 ' fourth 1,000 
 
 
 
 
 
 4/10 
 
 400 
 
 
 ' fifth 1,000 
 
 
 
 
 
 5/10 
 
 500 
 
 
 ' sixth 1,000 
 
 
 
 
 
 6/10 
 
 600 
 
 
 ' seventh 1,000 
 
 
 
 
 
 7/10 
 
 700 
 
 
 ' eighth 1,000 
 
 < 
 
 c 
 
 
 ' 
 
 ' 8/10 
 
 800 
 
 
 ' ninth 1,000 
 
 * 
 
 
 
 ' 
 
 ' 9/10 
 
 900 
 
 
 ' tenth 1,000 " and all above are taxed at the full rate. 
 
 The amounts of the assessments thus obtained are 
 not published. 11 
 
 ll . I am indebted to the Honorable Henry M. Wilson, United 
 States Ambassador to Beligum, for the information in regard to 
 local income taxes in Belgium, which was received in the form of a 
 communication from the Governor of the Province of Brabant.
 
 BRITISH COLUMBIA 47 
 
 BRITISH COLUMBIA. 
 
 Of the ten subjects of taxation which are men- 
 tioned in the Assessment Act the sixth is income. 
 The first $1,000 is exempt and the rates are as fol- 
 lows: 
 
 Class A. Up to $2,000 \V 2 % 
 
 " B. $2,000 to $3,000 iytfo 
 
 " C. $3,000 " $4,000 2% 
 
 " D. $4,000 " ^7,000 3% 
 
 " E. In excess of $7,000 4% 
 
 The tax is due January second in each year, and 
 a discount of ten per cent is allowed if the taxes are 
 paid on or before June 30th. 
 
 The Act of 1903 was considered objectionable in 
 that it taxed both personal property and the income 
 derived from it. The method of meeting this objec- 
 tion was somewhat orioinal and is shown by the fol- 
 lowing quotation from the amending act passed in 
 1907: 
 
 When any person is assessed and taxed on personal 
 property from which his income is derived, the amount of 
 the tax on such personal property, if greater than the amount 
 of the tax on his income, shall be the only tax payable in 
 respect of both income and personal property ; if the tax on 
 income is greater in amount than the amount of the tax on 
 personal property, the amount of tax on income shall be the 
 only tax payable in respect of both income and personal 
 property, and in the event of the amount of the tax on per- 
 sonal property and the amount of the tax on income being 
 equal, the tax on income shall be the only tax payable in 
 respect of both income and personal property. 12 
 
 This provision is explained by the Provincial Sur- 
 veyor of Taxes as follows : 
 
 The assessor has the right to collect the tax which yields 
 the greater revenue; that is, he chooses between what the 
 
 12 . 3 & 4 Edw. VII, c. 53, 5.
 
 4 8 
 
 INCOME TAXATION 
 
 tax is on personal property (which is revenue producing) 
 and the tax on the income produced therefrom. Where in- 
 come is derived from other sources than personal property, 
 such income is taxable, in addition to the tax on personal 
 property from which no income is derived. 
 
 The place which the income tax fills in the gen- 
 eral scheme of taxation may be seen from the follow- 
 ing- table in which, for the sake of brevity, the cor- 
 porate and individual incomes have been combined 
 and the percentage in each case of the total tax has 
 been computed : 
 
 Year Am't of Income Am't of Tax Total Taxes Percentage of 
 Assessed on Income Income Tax to 
 
 1900 
 1901 
 1902 
 1903 
 1904 
 1905 
 1906 
 1907 
 1908 
 
 The 
 
 $ 20,643 
 
 $ 1,821,165 
 2,508,462 
 2,393,377 
 2,561,123 
 5,904,507 
 5,557,183 
 7,136,817 
 8,461,566 
 10,257,712 
 
 white population of British Columbia is esti- 
 
 40,393 
 
 37,879 
 
 40,130 
 
 93,241 
 
 74,728 
 
 98,733 
 
 124,298 
 
 163,412 
 
 
 total Tax. 
 
 $291,410.77 
 
 7.08 
 
 324,400.36 
 
 12.45 
 
 335,167.75 
 
 11.27 
 
 343,646.85 
 
 11.67 
 
 757,496.39 
 
 12.30 
 
 748,337.68 
 
 9.98 
 
 714,486.13 
 
 13.81 
 
 659,514.95 
 
 18.84 
 
 856,373.33 
 
 19.08 
 
 mated at 260,000 and in view of the fact that it is 
 scattered over a great area, the comparative success 
 of the income tax is remarkable. Mr. John B. Mc- 
 Killigan, the Provincial Surveyor of Taxes, testifies 
 that the tax is productive of good results and gives 
 general satisfaction. 13 
 
 CANADA. 
 
 The government of Canada, as such, does not have 
 an income tax law, but the province of Ontario has a 
 
 13 . McKilligan, Taxation in British Columbia, in State and 
 Local Taxation, 2nd International Conference, Addresses and Pro- 
 ceedings (1909), p. 327.
 
 CANADA 49 
 
 partial income tax law under which income is taxed 
 at the same rate and to some extent in the same man- 
 ner as other property. There is no graduation in the 
 tax, except as the exemptions at the foot of the scale 
 tend to give it a progressive character. The exemp- 
 tions consist of one thousand dollars deduction from 
 personal earnings or from any pension, credit or re- 
 tiring allowance in respect of personal services, while 
 the person in question is a resident and householder 
 in a city or town. If the person is a resident and 
 householder in a municipality other than that which 
 levies the tax, the exemption is $700, and if the per- 
 son is a resident, but not a householder in the city or 
 town, the exemption is $600. 
 
 The income of householders derived from invest- 
 ments is exempt if it does not exceed $300. Income 
 from real estate (except interest on mortgages) is 
 wholly exempt as it is supposed to be reached by the 
 real estate and business tax. 14 
 
 The amount of taxable income and the rates for 
 1907 were : 
 
 Rural $2,832,831 Average rate 1.15% 
 
 Urban 4,644,311 " " 2.36% 
 
 City 14,039,181 " " 2.26% 
 
 Total $21,516,323 
 
 Applying the above rates to the taxable income it 
 would appear that the amount of tax collected on in- 
 comes was $459,168.78 or 2.35 per cent of the total 
 amount raised by taxation. 
 
 14 . See Consular Report in Congressional Record, Vol. 45 (Jan. 
 27, 1910), p. 1115.
 
 5<D INCOME TAXATION 
 
 In the province of Alberta there are a few towns 
 and cities which levy income taxes. The city of 
 Edmonton levies a tax on all personal income in ex- 
 cess of one thousand dollars. The rate is that "of the 
 general property tax for each year and the amount 
 collected is very small, being less than one per cent 
 of the total taxes. 
 
 CAPE OF GOOD HOPE. 
 
 The income tax in this Colony dates from the 
 "Additional Taxation Act" of 1904 a law which 
 seems to have been drawn with unusual care in so far 
 as administration is concerned, but which provides 
 an extremely high exemption and a clumsy method 
 of gradation. The provision of the law as to rates is 
 as follows : 
 
 50. From and after the ist of July, 1904, subject to 
 the provisions of this Act and the regulations hereunder, 
 there shall be charged, levied, collected and paid to the 
 revenue of the Colony for the service of the financial year 
 ending the 3Oth of June, 1905, an income tax in respect of 
 the annual amount of all taxable incomes arising or accru- 
 ing during the twelve months ended the 3Oth June, 1904, 
 exceeding one thousand pounds per annum at the rate of 
 sixpence in the pound upon all incomes exceeding one thou- 
 sand pounds and not exceeding two thousand pounds, and 
 in addition thereto ninepence in the pound on so much as 
 exceeds two thousand pounds up to five thousand pounds, 
 and in addition thereto one shilling in the pound on so much 
 of all incomes as exceed five thousand pounds.
 
 CAPE OF GOOD HOPE 51 
 
 This section has been construed to levy the fol- 
 lowing rates : 
 
 Incomes not exceeding l,000 exempt! ,. . ,> A 
 
 Incomes exceeding 1000 ($4,866.50) [ 6 d m the pound on e f r e n s > 
 but not exceeding 2,000 ($9,733) ' J c 
 
 ] The 1st 1,000 is not taxed. 
 The 2nd 1,000 is taxed 6d. 
 
 Incomes exceeding 2,000, but not I in the nound or 2 50% 
 
 exceeding 5,000 ($24,332.50) and th^ remainder' '9 <L in 
 
 j the pound, or 3.75% 
 
 1st 1,000 exempt. 2nd 
 1,000 tax of 6 d. or. .2.50% 
 Next 3,000 tax of 9 d. or 
 
 Incomes exceeding 5,000 
 
 .3.75% 
 
 Remainder above 5,000 is 
 taxed 1 s. in the pound 
 or 5% 
 
 The exemption of 1,000 does not apply to limited 
 liability companies or to shareholders in such com- 
 panies in respect of their income. 
 
 Every company is required to have a "public 
 officer" who is appointed by the board of directors 
 and whose duty it is to pay the income tax and to 
 represent the company in all matters relating to in- 
 come tax. 
 
 The provisions of the law as to "representative 
 taxpayers" are so well designed to accomplish the end 
 sought that it has seemed worth while to quote them 
 in full: 
 
 53. Subject to the provisions of this Act, income tax 
 shall be payable : 
 
 (1) In respect of the income of a company, by the 
 public officer thereof. 
 
 (2) In respect of the income of every person per- 
 manently or temporarily absent from or resident out of the 
 Colony, by the attorney or agent of such person, and for the 
 purpose of this Act every person in the Colony having the 
 receipt, management or control of income on behalf of any 
 such person shall be deemed to be the agent of such person. 
 
 The commissioner may, if he thinks necessary, de- 
 clare any person to be the agent of any other person, and the
 
 52 INCOME TAXATION 
 
 person so declared an agent shall be the agent for the pur- 
 poses of this Act. 
 
 (3) In respect of income the subject of any trust or of 
 infants, lunatics and persons under any legal disability by 
 the trustee, guardian, curator or other person entitled for 
 the time being to the receipt, management, disposal or con- 
 trol of such income or remitting or paying the same. 
 
 (4) In respect of income paid under the decree or order 
 of any court or judge to any receiver or other person, by 
 such receiver or person, and independently of the title to 
 such income or any contingency or uncertainty in respect of 
 such title. 
 
 (5) In respect of every other income, and in all other 
 cases, by the person to whom the income arises or accrues 
 or who is legally or equitably entitled to the receipt thereof. 
 
 And the person by whom income tax is payable under 
 subsections one to four of this section inclusive shall be 
 deemed to be "representative taxpayers" within the mean- 
 ing of this Act. Nothing shall be taken to relieve the per- 
 son receiving the income from the representative taxpayer 
 from any tax due or payable in respect thereof. 
 
 54. Every representative taxpayer, as regards the in- 
 come to which he is entitled in his representative capacity, 
 or of which in such capacity he has the management, receipt, 
 disposal, remittance, payment or control, shall be chargeable 
 with the same income tax, and be subject in all respects to 
 the same liabilities as if the same were income arising or 
 accruing to him beneficially, except that no such taxpayer 
 (not being a public officer of a company) shall be personally 
 liable for the payment of income tax beyond the amount or 
 value of the income of which he has, in such capacity as 
 aforesaid, the management, receipt, disposal, or control : 
 Provided that nothing herein contained shall, in cases where 
 the representative taxpayer acts as agent or trustee, for 
 several persons, prevent such representative taxpayer from 
 claiming that each agency or trust shall be treated separate- 
 ly for the purpose of claiming the exemption, or deduction 
 provided for in section fifty-one. 
 
 55. Every representative taxpayer who, as such, pays 
 any tax, shall be entitled to recover from the person on 
 whose behalf such tax shall be paid, or to retain out of any 
 moneys that may come to him in his representative capacity, 
 so much as shall be required to indemnify him in respect of 
 such payments.
 
 DENMARK 
 
 53 
 
 The collections from the tax for the first year were 
 estimated at 280,000 to 290,000 ($1,411,140) and 
 the number of taxpayers at 8,000 or three-tenths of 
 one per cent of the total population ( $2,433,000 ). 15 The 
 amount collected in 1904-5 was 292,254; in 1905-6, 
 252,940 and in 1906-7, 263,918 ($1,184,225). The 
 total revenue for 1906-7 was 7,701,192, of which sum 
 the income tax contributed 3.42 per cent. 16 
 
 DENMARK. 
 
 The law now in force which was passed May 15, 
 1903, and went into effect April 1, 1904, 17 combines 
 an income and property tax. The tax upon property 
 is six-tenths of one per cent, while the rates upon in- 
 come are shown in the following table: 
 
 Income 
 
 Under 2,000 Kroner, 
 2,000 Kr. to 3,000 Kr. 
 
 3,000 
 
 4,000 
 
 6,000 
 
 8,000 
 
 10,000 
 
 15,000 
 
 20,000 
 
 30,000 
 
 40,000 
 
 50,000 
 
 100,000 
 
 4,000 
 6,000 
 8,000 
 10,000 
 15,000 
 20,000 
 30,000 
 40,000 
 50,000 
 100,000 
 or over 
 
 Rate 
 
 ($ 536) 1.3% 
 
 ($ 804) 1.4% 
 
 ($ 1,072) 1.5% 
 
 ($ 1,608) 16% 
 
 ($ 2,144) 1.7% 
 
 ($ 2,680) 1.8% 
 
 ($ 4,020) 1.9% 
 
 ($ 5,360) 2. % 
 
 ($ 8,040) 2.1% 
 
 ($10,720) 2.2% 
 
 ($13,400) 2.3% 
 
 ($26,800) 2.4% 
 
 2.5% 
 
 The law as to exemptions is peculiar in that it 
 recognizes the fact that the minimum of existence 
 should be placed higher for persons residing in large 
 
 15 
 
 Graduated Income Tax, etc., op cit. (See Ch. II, Note 10 
 ante) p. 29. 
 
 le . Annual Cape of Good Hope Statistical Register, 1908. 
 
 17 . Lov om Indkomst- og Formueskat til Statcn. V. Pios Bog- 
 handel. Copenhagen, 1910.
 
 54 INCOME TAXATION 
 
 cities. The principle is carried still farther by grad- 
 ing the exemptions made for children or dependents. 
 Section 8 of the law reads (when translated), as follows : 
 
 From every income there shall be exempted as free from 
 taxation : 
 
 In Copenhagen and Fredericksberg, 800 Kr. ($214) ; in 
 market towns (including Marstal and Fredericks vaerk), 700 
 Kr. ($187.60) ; and in rural districts, 600 Kr. ($160.80) ; 
 for every child which was under 15 years at the beginning of 
 the calendar year for which the tax was levied and is not 
 liable to taxation under the provisions of Section 7, an addi- 
 tional exemption of 100 Kr. ($26.80) in Copenhagen and 
 Fredericksberg; 85 Kr. ($22.78) in market towns * * * 
 and 70 Kr. ($18.76) in rural districts. 
 
 The Section 7 above mentioned provides that the 
 head of the family shall be taxed for the combined in- 
 come of the members of the household. The wife, if 
 living with her husband, is reckoned as a part of the 
 household, even though she have an independent in- 
 come, as are also dependent children who are not 
 themselves householders. If the wife have separate 
 property or income she may be required to pay her 
 proportion. If the wife is living permanently apart 
 from her husband she may be taxed independently for 
 all of her income except that portion which she re- 
 ceives from her husband in the form of alimony or 
 otherwise. 
 
 The exemptions above mentioned do not apply to 
 non-resident persons or corporations, and their tax is 
 fixed at two per cent. In computing the tax the 
 whole amount of income, less the deductions, is 
 divided by fifty and the remainder ignored. Another 
 curious provision, the reason for which is not ap- 
 parent, is to the effect that the rate shall be deter-
 
 DENMARK 55 
 
 mined upon the basis of the total income before any 
 deductions are made. 
 
 The provisions for the administration of the "in- 
 come and property tax" are very complete and 
 specific. They comprise 20 pages of the pamphlet 
 edition of the Lov om Indkomst- og Formueskat til 
 S tat en (Law concerning State Income and Property 
 Tax) and bear some resemblance to the system in 
 Germany. The country is apportioned into taxing 
 districts and for each district a Skatteraad (assess- 
 ment or taxation board) is appointed by the Minister 
 of Finance, who also names the chairman. These 
 officials hold office for six years, one-half retiring 
 every three years. They are paid small salaries in 
 addition to their traveling expenses. Service upon 
 these boards is obligatory except in the case of clergy- 
 men, persons over sixty years of age and those who 
 have already served. There is also a General Super- 
 ior Taxation Board (Overskatteraad} which consists 
 of the Amtmand (High Sheriff or Magistrate) of each 
 county as chairman, two members appointed by the 
 Minister of Finance and two members nominated by 
 the County Board from among its members. 
 
 On or before February first of each year, public 
 notice is given that all persons must give statements 
 of their income and property and blank forms for 
 statements are distributed. The process of assess- 
 ment must be completed by March 31, and complaints 
 may be filed during the first half of April. These 
 complaints are heard and passed upon in the latter 
 half of the month. Any person who neglects to make 
 the required statement forfeits his claim to protest 
 against the assessment unless he can prove that he 
 has been assessed for an amount exceeding his true
 
 56 INCOME TAXATION 
 
 income by more than 25 per cent. For example, if the 
 excess were 20 per cent this would not constitute any 
 ground for relief. If, however, the taxpayer can show 
 that the assessment exceeds his true income by more 
 than 25 per cent he will be allowed to pay upon the 
 lower amount plus a 15 per cent penalty for not hav- 
 ing made a declaration. Any person guiltv of false 
 statements or returns as to his income is liable to a 
 fine not exceeding ten times the amount of the tax 
 thereby evaded. The taxation boards and officials 
 are bound to inviolable secrecy as to the information 
 they obtain regarding incomes. 
 
 The collectors of the tax are distinct officials, un- 
 connected with the assessment boards and they re- 
 ceive \y 2 per cent of the amount which they collect. 
 
 The results of the collections for the year ending 
 March 31, 1904, which was the first year the tax was 
 in operation, were : 
 
 Collected from Income Tax 5,915,266.57 Kr. ($1,585,291) 
 " Property Tax 2,582,956.64 " ( 692,232) 
 
 Total 8,498,223.21 Kr. ($2,277,523) 
 
 It will thus be seen that the income tax constituted 
 nearly 70 per cent of the total amount. The number 
 of income taxpayers was 306,937 and the total amount 
 of income assessed was 643,571,209 Kr. ($172,482,- 
 074). The collections from income tax in 1907 had 
 risen to about $2,150,000 and the number of income 
 taxpayers in 1908-9 to 337,011, or 15 per cent of the 
 total population of 2,588,919. 18 
 
 Copenhagen, the capital city, has a communal or 
 city income tax which is based upon a law of Oct. 22, 
 1903, as amended June 2, 1909, and ratified by the 
 
 18 . Congressional Record, Vol. 45, p. 1112.
 
 COPENHAGEN 
 
 57 
 
 King, April 18, 1910. 19 The main purpose of the tax 
 is to meet any deficiencies in the budget, and it is 
 separate from, and additional to the government in- 
 come tax. The first section of the law is as follows : 
 
 The amount necessary to meet the communal expenses 
 of the city of Copenhagen, and not provided for by other 
 communal taxes or income from other sources, shall be 
 raised by an income tax which shall be levied in accordance 
 with the following law. 
 
 The computation of the rates is somewhat 
 peculiar, the basis being arranged by the following 
 scale : 
 
 Taxable income under 800 Kr. pays one per cent of 
 amount up to 600 Kr., and 1% per cent of the amount 
 above that sum. For example, if the amount of in- 
 come is 700 Kr. the tax would be 1% of 600=6, plus 
 of 100=1.25, total 7 l / 4 Kr. 
 
 800 to 1,000 Kr. 1.1% of 800 Kr. and 2.6% of tf 
 
 1,000 
 
 2,000 
 
 1.4% 
 
 1,000 
 
 
 3.4% 
 
 
 2,000 
 
 6,000 
 
 2.4% 
 
 2,000 
 
 
 3.6% 
 
 
 6,000 
 
 10,000 
 
 3.2% 
 
 6,000 
 
 
 3.7% 
 
 
 10,000 
 
 20,000 
 
 3.4% 
 
 10,000 
 
 
 4. % 
 
 
 20.000 
 
 40,000 
 
 3.7% 
 
 20,000 
 
 
 4.3% 
 
 
 40,000 
 
 100,000 
 
 4. % 
 
 40,000 
 
 
 5. % 
 
 
 100,000 
 
 200,000 
 
 ' 4.6% 
 
 100,000 
 
 
 5.4% 
 
 
 200,000 Kr. 5. % ' 
 
 200,000 
 
 
 6. % 
 
 
 The percentages above given are not the rates of 
 taxation, but simply form a proportional basis 
 ( Grundbeloeb ) , which may be raised or lowered by a 
 uniform percentage according to the amount neces- 
 sary to be collected. 
 
 The provisions for administering the tax are sub- 
 stantially similar to those in the income tax law of the 
 general government. 
 
 19 . Lov om Indkomstskat til Kjoebenhavns Kommune samt 
 Anordning af 22 Oktober, 1903, og Anordning af 2 Juni 1909. V. 
 Pios Boghandel, Copenhagen, 1910.
 
 CHAPTER IV. 
 
 ENGLAND. 
 
 The income tax now in force in Great Britain and 
 Ireland is often spoken of as the most successful 
 measure of the kind which has thus far been devised. 
 Not only is the absolute amount raised by it each 
 year larger than has ever been obtained by an income 
 tax in any other country, but its collection is accom- 
 plished with less harshness and friction than are 
 usually supposed to be necessary with this form of 
 tax. The chief merit of the English income tax lies 
 in the remarkably large extent to which it is collected 
 at the source thus obviating the necessity for in- 
 quisitorial proceedings upon the one hand, while re- 
 moving the opportunity for fraud and evasion upon 
 the other. It is stated by one who has given the sub- 
 ject very careful study that probably more than four- 
 fifths of the tax collected is assessed in such a way, or 
 under such conditions, that evasion is, broadly speak- 
 ing, out of the question. 1 In the most important 
 
 x . See monograph on the English Income Tax by Joseph A. Hill, 
 Ph.D., in Economic Studies, Vol. 4, Publications of American Eco- 
 nomic Association, pp. 272 and 387. This is the clearest exposition 
 of the administrative features of the English income tax which has 
 come to our notice and it will be referred to frequently in the fol- 
 lowing pages.
 
 ENGLAND 59 
 
 schedule, the tax is levied upon over 88 per cent of the 
 income subject to it. A second advantage of the Eng- 
 lish system is that by its division of income into sepa- 
 rate schedules, assessed to a considerable extent by 
 different officials, complete knowledge of one's finan- 
 cial condition is not obtained by any one assessor. A 
 third great merit of the tax is that the amount of it 
 can be readily adjusted to the fiscal needs of the 
 country by a very slight change in the rate. It is true 
 that the rate is rendered progressive by abatements 
 on smaller incomes and a super-tax on the larger; but 
 there is one fixed rate upon the basis of which all 
 computations are made and as this rate is determined 
 for each year by act of Parliament a certain elasticity 
 is given to the tax. 
 
 History. The idea of levying taxes with reference 
 to the amount of income received by the taxpayers is 
 by no means new in England. As early as 1379 a 
 graduated poll tax was imposed, based in part upon 
 income. It should be explained that this was not a 
 poll tax in the strict sense of a fixed sum demanded of 
 every person; but the term was formerly used in 
 England in connection with taxes levied upon all the 
 persons in a class. The people were divided into 
 classes according to their rank, condition in life, prop- 
 erty or income, and each person was taxed according 
 to the rate fixed for the class to which he was as- 
 signed. In many respects the tax bore a certain re- 
 semblance to the later class-tax or Klassensteuer, of 
 Germany. These poll taxes, usually graduated in 
 amount progressively, were imposed at various in- 
 tervals in the fifteenth and sixteenth centuries and 
 were measures of considerable fiscal importance.
 
 6O INCOME TAXATION 
 
 The first English income tax in the modern sense 
 of the term was introduced at the instance of William 
 Pitt, at that time Prime Minister and first Lord of 
 the Treasury, in January, 1799. It bore some general 
 resemblance to the present law in that incomes were 
 divided into four main schedules, a certain sum was 
 exempt, allowances were made for children and for 
 life insurance premiums. But it differed from the 
 later tax by being graduated, the highest rate being 
 ten per cent. According to Pitt's original estimate 
 the tax was designed to produce ten million pounds 
 but the actual yield was only about six million pounds, 
 and the law was repealed in 1802. 
 
 In 1803, what is known as Addington's Property 
 and Income Tax was imposed. This tax bears a strik- 
 ing resemblance to the one now in force. It differed 
 from Pitt's plan, which involved a general return of 
 income from all sources, in that it provided for 
 particular returns from particular sources and sub- 
 stituted a flat rate of one shilling on the pound (which 
 is the exact rate that has been levied for the past few 
 years), for the progressive rate. The schedules A, 
 B, C, D and E were substantially the same as in the 
 present law, and there were the usual exemptions and 
 abatements. 
 
 In 1806 a new law known as Petty's Property and 
 Income Tax was passed. It differed from the law of 
 1803 in some minor details, and was repealed in 1815. 
 not because it had proved itself inefficient, but be- 
 cause it had been adopted only as a war, or emergency 
 measure, with the general understanding on the part
 
 ENGLAND 6 1 
 
 of the tax-paying public that it would be repealed as 
 soon as the war was ended. 
 
 The net yield of the tax for the year ending April 
 5, 1815, was 14,545,279 ($70,690,050) which, it will 
 be noticed, was nearly three times the amount realized 
 from the tax a quarter of a century later and nearly 
 half the amount which it now produces a remark- 
 able result in view of the fact that the population and 
 wealth of the country have quadrupled since 1815. 
 
 For twenty-seven years after 1815, there was no in- 
 come tax in England. In 1842 Sir Robert Peel re- 
 vived the tax, partly to provide for a deficit in the 
 budget and partly to enable him to reduce the tariff. 
 It is said that the adoption of the law was immediately 
 followed by the placing of over 700 articles on the 
 free list. This fact is significant in connection with 
 the possible effect upon the tariff of a Federal income 
 tax in the United States. Although the tax of 1842 
 was levied as a temporary expedient for a period of 
 only three years, it was found, at the end of that time, 
 that it could not well be dispensed with and in 1845 
 it was extended for another three years and again in 
 1848. In 1851 and 1852 it was continued for only a 
 year, as there was some talk of abolishing it. In 
 1853 Gladstone obtained the consent of Parliament 
 to a continuance of the tax for seven years at a rate 
 of seven pence for the first two years, six pence for 
 the second two years and five pence for the last three 
 years the evident intention being to gradually de- 
 crease the amount of the tax until it could be finally 
 abolished. But the tax had come to play such an im- 
 portant role in the finances of the country that noth-
 
 62 INCOME TAXATION 
 
 ing could be found to replace it, and although still 
 voted from year to year, it has become a permanent 
 feature of the British taxing system. 
 
 Rates and Schedules. The annual rate has varied 
 from 5 pence in the pound in 1853, to 1 shilling 4 pence 
 during the Crimean War, in 1856; and from 2 pence in 
 1874, to 1 shilling 3 pence in 1902, during the South 
 African war. For the past few years, until 1909, the 
 rate has been fixed at 1 shilling in the pound or 5 per 
 cent. The abatements and super-tax result practically in 
 changes of rate for certain individual taxpayers, but the 
 amount of revenue which the tax will yield is usually 
 estimated on the basis of what each penny of the rate will 
 produce. Thus, in 1898, when the rate was 8 pence the 
 total revenue collected for each penny of the tax was 
 2,188,000 ($10,692,000) and in 1907, when the rate 
 was 1 shilling the total revenue for each penny was 
 2,667,000 ($12,977,000). In terms of American cur- 
 rency this would be approximately $5,350,000 and 
 $6,500,000 for each one cent of the tax in the respective 
 year. 2 
 
 The different kinds of taxable income are classified 
 under five heads or schedules : 
 
 Schedule A includes income from "property in all 
 lands, tenements, hereditaments and heritages in the 
 United Kingdom" in other words, income arising from 
 the ownership of lands and houses, including the rental 
 value of premises occupied by the owner as well as the 
 rents received by the landlord from the tenant. 
 
 2 . See Consular Report in Congressional Record, Vol. 44 (July 
 3, 1909) p. 4151.
 
 ENGLAND 63 
 
 Schedule B applies to the direct income from the use 
 or occupation of land, that is, the income received by the 
 farmer, whether owner or tenant. Schedules A and B 
 do not apply to land or buildings used for industrial or 
 business purposes. The income from such sources would 
 be included in Schedule D. 
 
 Schedule C includes "all profits arising from interest, 
 annuities, dividends and shares of annuities payable to 
 any person, body-politic or corporate company or society, 
 whether corporate or not corporate, out of any public 
 revenue," 
 
 Schedule D covers : 
 
 a). The annual profits or gains arising or accruing to 
 any person residing in the United Kingdom from any 
 kind of property whatever, whether situate in the United 
 Kingdom or elsewhere; and annual profits or gains aris- 
 ing or accruing to any person residing in the United 
 Kingdom from any profession, trade, employment, or 
 vocation, whether the same shall be respectively carried 
 out in the United Kingdom or elsewhere. 
 
 b). The annual profits or gains arising or accruing 
 to any person, whether a subject of His Majesty or not, 
 whether a resident within the United Kingdom or not, 
 from any profit whatever in the United Kingdom, or any 
 profession, trade, employment, or vocation exercised 
 within the United Kingdom. 
 
 c). All interest of money, annuities, and other an- 
 nual profits and gains not charged by virtue of any of 
 the other schedules. 
 
 This is the most important schedule as it applies to 
 more than half of all the income assessed, and owing to 
 the provision embodied in the last sentence it should have 
 been logically the last schedule.
 
 64 INCOME TAXATION 
 
 Schedule E is often placed before D and applies to 
 the income from public office or employment of profit, 
 and upon every annuity, pension or stipend payable by 
 His Majesty, except annuities charged to the duties un- 
 der schedule C. 
 
 Exemptions. The law of 1803 exempted 60 ($292). 
 The law of 1842 exempted all incomes under 150. This 
 exemption was changed in 1853 to 100, in 1876 to 150 
 and in 1894 to 160 ($778), at which point it has since 
 remained. 
 
 Abatements. Taxpayers w r hose incomes are between 
 160 and 700 are entitled to certain abatements, not of 
 the tax, but of the amount on which the tax is levied, as 
 follows : 
 
 An abatement of 160 on incomes exceeding 160, but not over 400 
 " 150 " " " 400. " " " 500 
 " 120 " " " 500, " " " 600 
 " 70 " " " 600, " " " 700 
 
 Where income arises under different schedules the 
 abatement is allowed preferably from the amounts re- 
 ported in schedules D and E. If, for instance, the claim- 
 ant's income consisted of 200 derived from his business 
 or occupation (schedule D) and 100 representing the 
 annual value of his dwelling house (schedule A), the 
 abatement of 160 would be deducted from his business 
 income, and he would thus be taxed for 40 of income 
 in schedule D and 100 in schedule A. The effect of 
 these abatements is curiously regressive within the first 
 class and progressive thereafter. For example, a tax- 
 payer having an income of 161 would pay (assuming 
 the rate to be one shilling on the pound) a five per cent 
 tax on the one pound which would be taxable, while the 
 person whose income was 400 would pay only 240 shill-
 
 ENGLAND 65 
 
 ings or three per cent. The rates for the lowest and 
 highest amounts in each class would therefore be as fol- 
 lows : 
 
 Lowest amounts Highest amounts 
 
 On 161 = 5. % On 400 = 3. % 
 
 " 401 = 3.1% " 500 = 3.5% 
 
 " 501 3.8% " 600 = 4. % 
 
 " 601 = 4.4% " 700 4.5% 
 
 In addition to these abatements there are deductions 
 from gross income, such as those for life insurance 
 premiums, charities and hospitals, repairs of lands and 
 houses and wear and tear of machinery or plant. De- 
 ductions of one-eighth are allowed in respect of lands 
 and one-sixth in respect of houses for repairs. 
 
 A new abatement has been added in the budget of 
 1909 by means of which persons earning under 500 a 
 year are given an allowance of ten pounds for every child 
 under sixteen years. 8 
 
 To secure any of these abatements it is necessary 
 to present a claim accompanied by a declaration of all 
 income received. It appears that in most cases the full 
 amount of tax is paid and the amount of abatement re- 
 paid on proper proof. It is said that, in order to secure 
 the abatements and deductions which are allowed, about 
 four-fifths of the income taxpayers make written de- 
 clarations of their aggregate income. 
 
 In 1897, under this cumbersome method, over 300,- 
 000 claims were presented.* The amount of .tax re- 
 funded in the same year was 891,741 ($4,339,212). 
 
 3 . See Clause 68 of Part IV of Finance Bill of 1909. 
 
 4 . About sixty per cent, of those who pay income taxes in 
 England receive allowances or rebates. Bastable, C. F. The Budget 
 of 1907 considered with special reference to the Income Tax. Eco- 
 nomic Journal, Vol. 17 (June, 1907), p. 165.
 
 66 INCOME TAXATION 
 
 Of this amount 326,000 was for exemptions, 228,000 
 for abatements, 118,000 for charities, 5 47,000 for life 
 insurance premiums and the residue for various other rea- 
 sons. 6 The variety and extent of the abatements account 
 for the large proportion of income taxpayers who make 
 declarations of their income. 
 
 As to the actual practical workings of this system of 
 abatements the following comments by Mr. Hill will 
 prove instructive : 
 
 These abatements of course have the effect of making 
 the tax progressive up to the point where they cease to ap- 
 ply. Progression may on general grounds be justifiable and 
 desirable. But a tax which, like the English income tax, is 
 levied upon the sources of income is not well suited for any 
 extended application of the progressive principle ; and what- 
 ever may be said in favor of the abatements it can hardly 
 be denied that, so far as the question of administration is 
 concerned, the tax has been complicated and, we may add, 
 weakened by their introduction and recent extension. Prob- 
 ably the great majority of taxpayers are now entitled to an 
 abatement. But in order to secure it they must make a 
 declaration of their aggregate net income from all sources, 
 and in order to guard against fraud the officers of assess- 
 ment must satisfy themselves that the declarations are cor- 
 rect. In this way the necessity for ascertaining individual 
 incomes and relying upon declarations is being extended, 
 and the advantages of an assessment at the source of the 
 income are in a corresponding degree sacrificed. Then there 
 is the inconvenience involved in assessing and collecting a tax 
 to which the government is not entitled and afterwards re- 
 funding it. That the progression thus introduced by means 
 
 5 . Allowances are made for the income of colleges and uni- 
 versities, hospitals, literary and scientific institutions, land used for 
 charitable purposes, friendly societies, public schools, trade unions, 
 etc. See Consular Report in Congressional Record, Vol. 45 (Jan. 
 27, 1909), p. 1105. 
 
 6 . Hill, Joseph A. The English Income Tax. In Economic 
 Studies. Published by the American Economic Association, Vol. 4, 
 p. 349.
 
 ENGLAND 67 
 
 of abatements should have been carried as far as it has been 
 under conditions as unfavorable to its extension, is indicative 
 of the strength of the tendency towards progressive taxation, 
 under the influence of modern democracy. In this instance 
 the development of progression has doubtless been promoted 
 by the comparatively high rate (8d. in the pound) at which 
 the tax has been assessed in recent years. Unable to reduce 
 the tax on all incomes, because of the need of revenue, the 
 government has reduced it on the smaller incomes by ex- 
 tending the abatements. But when such an extension is 
 once made, it is pretty certain to be retained and perpetuated 
 even though the rate of the tax should be reduced to where 
 it formerly stood. Then the next time the Chancellor finds 
 it necessary to ask for another penny of income tax, he will 
 again be tempted to palliate the proposal by granting an- 
 other extension of the abatements. It becomes a question 
 how far this process can be carried without so counteracting 
 the advantages of the method by which the tax is assessed 
 as to render preferable the substitution of the alternative 
 method of assessing all the tax directly upon the recipients 
 of the income. 
 
 Super-tax. Among the recent changes made in the 
 law is the addition of a super-tax of six pence in the 
 pound on all incomes exceeding 5,000, making the total 
 rate on such incomes 6 2/3 per cent. This additional tax 
 was expected to yield, in 1909, 2,300,000 ($11,186,800), 
 and the law now requires a declaration of total income on 
 the part of all persons liable to this super-tax. 7 
 
 Differentiation. Another of the recent reforms is the 
 differentiation between earned and unearned incomes. By 
 earned incomes are meant those which are the result of 
 personal efforts and labor, and by unearned incomes those 
 which are the products of investments. The differentia- 
 
 r . For copy of the paragraph relating to the Super-tax see 
 Chapter 1 of this book p. 16.
 
 68 INCOME TAXATION 
 
 tion is effected by a reduction of 25 per cent in the rate 
 on earned incomes under 2,000 and, in the budgets ad- 
 mitted to Parliament for 1909, the tax on unearned in- 
 comes was increased by 2 d. making it 1 s. 2 d. 
 
 'Administration. It must be admitted that the methods 
 by which the English income tax is assessed and collected 
 are quite complicated so much so, in fact, that we must 
 forego any attempt to describe them in detail. A fairly 
 terse and clear account of those methods is given by 
 Joseph A. Hill in his excellent article upon the English 
 Income Tax, to which we have already referred. His 
 review of the manner in which the tax is administered 
 comprises about 150 pages. A few of the facts which 
 may be of interest are noted here. 
 
 The first step in the assessment is taken by the 
 assessor who leaves at each house in the parish to which 
 he is assigned a set of blank forms for making returns. 
 He also posts a notice or warning to all taxpayers to 
 make their returns within 21 days, and there is a penalty 
 for failure to comply. When the assessor has received 
 the returns he examines them and makes up an assess- 
 ment which is submitted to another official known as the 
 surveyor who can "rectify" the assessment if he chooses. 
 He acts under the immediate direction and supervision 
 of still another official known as the inspector. The in- 
 spectors are under the authority and control of the Board 
 of Inland Revenue to which specially difficult matters are 
 referred. This Board practically represents the Govern- 
 ment in the proceedings. The interests of the taxpayers 
 are represented by the General Commissioners and by
 
 ENGLAND 69 
 
 additional and special commissioners acting under them. 
 The general commissioners are required to be property 
 owners and taxpayers and they are appointed by the 
 Land Tax Commissioners who are a self-perpetuating 
 body. There are also Commissioners for Special Pur- 
 poses, or Special Commissioners. The members of the 
 Board of Inland Revenue are ex-officio Special Commis- 
 sioners and a number of others are appointed by the 
 Treasury. Every taxpayer may elect whether he will be 
 assessed by the General Commissioners for his district 
 or by the Special Commissioners. 
 
 It will thus be seen that the general commissioners, 
 who act as a final revisory and appeal board, are neither 
 elected by the people nor appointed by the Government 
 and are therefore in a particularly favorable position 
 for exercising their unbiased judgment. The above are 
 by no means all the officials concerned with the assess- 
 ment and collection of the tax, but what has been said 
 will suffice to show what great care has been taken to 
 have the administration of the tax carried out in a thor- 
 ough and effective manner. 
 
 Under the law as it stood a few years ago declara- 
 tions were not required as to the greater part of the tax. 
 For example, a government official would have the 
 amount of his income tax deducted from his salary and 
 would therefore have no occasion to make a declaration. 
 A considerable portion of the tax is assessed from "ex- 
 ternal marks" or, as we would say in America, from 
 "actual view." The extent to which these different 
 methods were employed in the year 1902-3 is shown by 
 the following table:
 
 7O INCOME TAXATION 
 
 I. (Declaration of the taxpayer unnecessary) 
 
 Schedule A. Ownership of lands, houses, etc. view 241,900,000 
 
 B. Occupation of lands, view 17,500,000 
 
 C. Government Securities, stoppage at 
 
 source and deduction 46,100,000 
 
 D. Foreign business securities, where in- 
 
 come was received through agents or 
 
 public companies, deduction 30,500,000 
 
 E. Profits of Companies and local author- 
 
 ities, deduction 245,600,000 
 
 F. Salaries of government and public 
 
 Company officials, stoppage at source, 
 deduction and declaration of employ- 
 ing Company 82,400,000 
 
 664,000,000 
 
 II. (Declaration of the taxpayer necessary) 
 
 Schedule D. Profits and salaries, persons and firms 211,200,000 
 
 Schedule D. Foreign Securities taxed by declaration 4,400,000 
 
 215,600,000 
 
 Total 879,600,000 
 
 Financial Results. The exact relation of the "prop- 
 erty and income tax" to other revenues of the United 
 Kingdom appears in the following summary of sources of 
 revenue for the fiscal year ending March 3, 1909 : 
 
 Customs 29,200,000 
 
 Excise 33,650,000 
 
 Estate, etc., duties 18,370,000 
 
 Stamps 7,770,000 
 
 Land Tax 730,000 
 
 House duty 1,900,000 
 
 Property and income tax 33,930,000 
 
 Post office 17,770,000 
 
 Telegraph and telephone 4,530,000 
 
 Crown lands 530,000 
 
 Suez Canal, etc 1,171,466 
 
 Miscellaneous 2,026,829 
 
 Total 151,578,295 
 
 From this total, in order to segregate the revenue de- 
 rived from taxation, it is necessary to deduct the receipts 
 from the post office, telegraph and telephone, crown 
 lands, Suez Canal shares and miscellaneous sources 
 amounting to 26,028,295. Making this deduction, it ap-
 
 ENGLAND 71 
 
 pears that the amount raised by taxation for the fiscal 
 year was 125,550,000 ($610,936,000) and that the in- 
 come tax of 33,930,000 ($165,103,380) was the largest 
 item, being 27 per cent of the total tax. 
 
 The following table will show the amounts raised by 
 the tax for ten years. The bulk of the increase in later 
 years was due to increased rates, though not exclusively 
 so, as the gross amounts and the net incomes both in- 
 creased in the period mentioned. Since every year re- 
 veals incomes previously covered up, the consequent addi- 
 tion either to the gross income or to the net income is 
 more apparent than real and cannot be taken as entirely 
 a fresh addition to the national wealth. The full returns 
 of net receipts from the tax and rates charged in the 
 period from 1899 to 1909 8 (to which we have added the 
 percentages) areas follows: 
 
 
 
 Rate in 
 
 
 Year 
 
 Amount 
 
 the pound 
 
 Percentage 
 
 
 
 sterling 
 
 
 
 
 s. d. 
 
 
 1899-1900 
 
 18,867,336 
 
 8 
 
 3.3 
 
 1900-1901 
 
 27,561,160 
 
 1 
 
 5. 
 
 1901-1902 
 
 35,378,700 
 
 1 2 
 
 5.83 
 
 1902-1903 
 
 38,659,846 
 
 1 3 
 
 6.25 
 
 1903-1904 
 
 30,500,450 
 
 11 
 
 4.58 
 
 1904-1905 
 
 31,263,654 
 
 1 
 
 5. 
 
 1905-1906 
 
 31,294,752 
 
 1 
 
 5. 
 
 1906-1907 
 
 31,891,949 
 
 1 
 
 5. 
 
 1907-1908 
 
 31,860,380 
 
 1 
 
 5. 
 
 1908-1909 
 
 33,930,000 
 
 1 
 
 5. 
 
 The relative importance of the income reached by the 
 various schedules may be seen by the following statement 
 of the amount of income taxed in the year ending March 
 31, 1907, after the abatements and deductions had been 
 made: 
 
 8 . The fiscal year in England ends March 31.
 
 72 INCOME TAXATION 
 
 Class 1. Profits from ownership of lands, houses, etc. 
 
 (Schedule A.) 158,452,590 
 
 Class 2. Profits from occupation of lands, etc. (Sched- 
 ule B.) i 4,111 ; 585 
 
 Class 3. Profits from British, Colonial and foreign 
 
 Government securities. (Schedule C.) 41,710,964 
 
 Class 4. Profits from business, professions, employ- 
 ments, etc. (Schedule D.) 381,036,647 
 
 Class 5. Salaries of Government, corporation and pub- 
 lic company officials. (Schedule E.) 54,736,452 
 
 Total 640,048,238 
 
 The number of income taxpayers has been variously 
 estimated at from 1,100,000 to 1,375,000, but as the 
 greater portion of the tax is collected at the source, and 
 as a single taxpayer might have income arising from 
 many different sources and in different taxing districts, 
 the number of assessments would be no indication of the 
 number of taxpayers. In 1907 the number of assessments 
 under Schedule D was 578,600, of which 476,404 were 
 upon individuals and the remainder on business firms and 
 public and private corporations. To these figures might 
 be added employees under schedules D and E to the num- 
 ber of 519,189, making a total of 1,097,789. 9 
 
 While it can hardly be said of any tax that it is popu- 
 lar, the fact that the British income tax has been in con- 
 tinuous operation for a period of nearly seventy years, 
 would seem to indicate that the English people have be- 
 come fairly reconciled to it. There will always be people 
 who will look upon the tax as unjust and inquisitorial, 10 
 
 9 . Pepper, Charles M. Report, as Special Agent on British 
 Income Tax. Monthly Consular and Trade Reports (U. S.) June, 
 1909, No. 345, p. 209. On page 215 of this report there would seem 
 to be an error by which 101,344 employees of business firms are 
 omitted from the computations of assessments on gross income. 
 
 10 . For a statement of the argument against the British Income 
 Tax see "Tyranny of the Income Tax" in Blackwood's Magazine, 
 178, pp. 279-84, August, 1905, where it is characterized as "the most
 
 ENGLAND 73 
 
 but among those who control the financial policy of the 
 British Empire there seems to be no thought of abolish- 
 ing the tax. 
 
 The comparative success of the English income tax 
 cannot be used as an argument in favor of such a tax in 
 the United States, without taking into account the es- 
 sential difference in the conditions which prevail in the 
 two countries. As has been well said : 
 
 England is, par excellence, the country of fixed in- 
 comes that is, of incomes derived from safe investments. 
 The number of persons living on such incomes drawn from 
 the public funds, home or foreign, from rent charges, from 
 mortgages, from farm rents and railroad shares, and vary- 
 ing little, if any, from year to year, is large in proportion to 
 
 dishonorable and humiliating tax that has ever been put upon a 
 willing and generous nation." 
 
 As a. typical instance of the feeling which such a tax engenders 
 when it is introduced for the first time, the following correspondence, 
 culled from the memoirs of John Horne Tooke, and quoted by 
 David A. Wells in his Theory and Practice of Taxation, p. 527, is 
 given : 
 
 May 3, 1799. 
 
 Sir: The commissioners having under consideration your 
 declaration of income have directed me to acquaint you that 
 they have reason to apprehend your income exceeds sixty 
 pounds a year. They therefore desire that you will reconsider 
 the said declaration and favour me with your answer on or 
 before the 8th inst. 
 
 I am your obedient servant, 
 
 W. B. LUTTLEY, Clerk. 
 To this Mr. Tooke replied : 
 
 Sir: I have much more reason than the commissioners 
 can have to be dissatisfied with the smallness of my income. I 
 have never yet in my life disavowed or had occasion to re- 
 consider any declaration which I have signed with my name. 
 But the act of Parliament has removed all the decencies which 
 used to prevail among gentlemen, and has given the commis- 
 sioners (shrouded under the signature of their clerk) a right 
 by law to tell me that they have reason to believe that I am a 
 liar. They have also a right to demand from me upon oath 
 the particular circumstances of my private situation. In obedi- 
 ence to the law, I am ready to attend upon this degrading oc- 
 casion so novel to an Englishman, and give them every ex- 
 planation which they may be pleased to require. 
 I am, sir, your humble servant, 
 
 JOHN HORNE TOOKE.
 
 74 INCOME TAXATION 
 
 the number of those who draw their incomes from what we 
 call "active business," or professional gains, to a degree of 
 which Americans have little idea. England is a country of 
 enormous accumulated capital lent out in every direction 
 all over the world, the yield of which supports a vast body 
 of persons in complete or partial leisure. Among us this 
 class is comparatively small. Nearly every American is in 
 a greater or less degree a trader or speculator, and is "turn- 
 ing over" his capital, if he has any, in some enterprise of 
 varying degrees of profit. 
 
 The most commendable feature of the English system 
 is the extent to which it favors the collection of income 
 tax at the source ; but it is not likely that any law could 
 be devised which would meet with equally favorable re- 
 sults in that respect in the United States. 11 
 
 11 . In some of the authorities cited in this chapter frequent 
 references will be found to "Pareto's Law." which consists of the 
 following mathematical formula: if x denotes any given income, 
 and y the number of incomes equal to or greater than x, then x^-y 
 = b a and b being constants and the value of a usually being about 
 1.6. As applied to income tax statistics in a number of countries 
 the law works out with great exactness, varying even less than the 
 well established tables of mortality. 
 
 Vilfredo Pareto. La courbe de la repartition de la richesse. [Ex- 
 trait du Recueil public par la Faculte de droit de 1'Universite de 
 Lausanne, a 1'occasion de 1'Exposition nationale suisse Geneve, 1906.]
 
 CHAPTER V. 
 
 FRANCE. 
 
 This chapter might be disposed of briefly by the state- 
 ment that there are no income taxes in France j 1 but even 
 if such a statement could be truthfully made at the pres- 
 ent moment, the prospects are that a different situation 
 will present itself in the immediate future. The world- 
 wide movement in favor of income taxation, which seems 
 to have reached every civilized country, has made itself 
 felt in France, where the need of some radical fiscal re- 
 form has been keenly felt for many years. The Chamber 
 of Deputies has already passed a bill which substitutes an 
 income tax for nearly all the Government taxes hereto- 
 fore levied and, while the Senate may insist upon some 
 modifications, the probabilities are that a law will be 
 agreed upon which will embrace the essential features of 
 the present bill. It cannot be said of this measure that 
 it was hastily prepared. On the contrary, it has probably 
 received more preliminary study and consideration than 
 was ever accorded to a similar law in any country. Dur- 
 
 *. Some of the present taxes in France are based upon real or 
 assumed income. "The contribution personelle mobiliere in 32,000 
 Communes is an income tax on presumed ability to pay, assessed 
 as a super-tax in addition to the other direct taxes, by a local jury." 
 Speech of the Minister of Finance in the French Chamber, July 
 12, 1906.
 
 76 INCOME TAXATION 
 
 ing the past thirty years innumerable schemes for taxa- 
 tion of income have been submitted to the French Parlia- 
 ment and a great number of commissions, parlementaire 
 and extra-parlementaire, have investigated the subject. 2 
 The present proposed law has occupied the attention of 
 Parliament for more than three years and has given rise 
 to a great amount of discussion in which the most pro- 
 found students of political economy and the ablest public 
 men have taken a prominent part. Whatever may be the 
 outcome of the present agitation in France, it cannot fail 
 to be of interest to Americans who are soon to find the 
 same problem in the foreground of national politics. The 
 history of the present law may be briefly summarized as 
 follows : 
 
 In October, 1906, Minister Clemenceau referred in 
 his message to a tax on incomes as one of the reforms 
 imperatively demanded by the French people. In pur- 
 suance of this suggestion a carefully prepared bill was 
 presented by the Government for the consideration of 
 Parliament on the 7th of February, 1907. This bill, to- 
 gether with three other projects which had been presented 
 in the previous July, was referred to the Commission on 
 Fiscal Legislation, consisting of thirty-two members, of 
 which M. Camille Pelletan was President. The Fiscal 
 Commission made its first report June 13, 1907, and on 
 the 25th of the same month, on motion of M. Pelletan, 
 supported by M. Caillaux, Minister of Finance, the bill 
 was made the order of the day from July 1st. The dis- 
 
 2 . The chief projects were those of Casimir Perier (1871), 
 Bouvier (1874), Gambetta (1876), the Commission of 1885, Peytral 
 (1888), Rabier (1890), Maujan (1891), Burdeau (1894), the Com- 
 mission of 1894, Ribot (1895), Doumer (1896), Cochery (1896), 
 Peytral (1898), Rouvier (1903), and the Fiscal Commission of 1904.
 
 FRANCE 77 
 
 cussion of the bill lasted eleven days, and was then sus- 
 pended until January 20, 1908, when it was resumed and 
 continued until February 18th. The debates which fol- 
 lowed occupied most of the time given to the sessions for 
 a full year, and finally culminated in the passage of the 
 bill by the Chamber of Deputies March 9, 1909, by a vote 
 of 388 in favor of the bill against 129 opposed, there be- 
 ing 26 absentees. 
 
 The opposition to the bill was led by Jules Roche, 
 whose brilliant and impassioned speeches have since been 
 published in book form; 3 while the defense of the meas- 
 ure was ably managed by M. Pelletan, President of the 
 Fiscal Commission and M. Caillaux, Minister of Finance. 
 The law was attacked on many grounds, but chiefly on 
 account of its inquisitorial character and its class dis- 
 criminations resulting from its progressive character and 
 the numerous abatements in the lower grades. The sup- 
 plemental tax, which applies only to incomes over 5,000 
 francs 4 ($1,000), was especially inveighed against and it 
 was shown that it would rest upon the shoulders of a 
 comparatively small class perhaps 500,000 of the tax- 
 payers. In answer to this M. Caillaux said : "Gentle- 
 men, it is true that in this country, there are not more 
 than 500,000 or 600,000 taxpayers who have incomes of 
 more than 5,000 francs. But what then? Our friends 
 on the right have tried to excite your sympathy on be- 
 half of this class who are about to be called on to bear a 
 
 3 . Roche, Jules, Uimpot sur le Revenu, 1909. Paris, Ernest 
 Flamarion. 
 
 4 . A franc is equal to 19.3 cents of American money and 5,000 
 francs would be $965.00, but when only the approximate amount in 
 American money is required it is usually obtained by dividing the 
 number of francs by five.
 
 78 INCOME TAXATION 
 
 small part of the public burdens. For my part I shall 
 reserve my solicitude for the millions and millions of 
 Frenchmen who are not exposed to this peril for the ex- 
 cellent reason that they do not receive 5,000 francs of in- 
 come in the course of a year." He also pointed out that 
 France was no longer a country of small fortunes, but 
 that six-tenths of the national wealth was owned by 
 260,000 persons and that, while these persons constituted 
 one-eightieth of the tax-paying population, the amount 
 which they contributed in the form of indirect taxes was 
 insignificant and the progressive features of the law were 
 necessary to counterbalance this inequality. 
 
 As was to be expected the Socialists were strongly in 
 favor of the bill and it is evident from a perusal of the 
 debates that political considerations were by no means 
 left out of view in framing the measure. 
 
 While it seems reasonably certain that public senti- 
 ment will demand the passage of an income tax law in 
 France, it is impossible to predict at the present writing 
 (October, 1910) what changes may result from the op- 
 position of the Senate, and it has therefore seemed best 
 to mention only a few of the salient features of the law 
 as it was passed by the Chamber of Deputies. 
 
 In its general outlines the proposed law bears most 
 resemblance to the Prussian system, particularly in re- 
 spect of I'impot complementaire which is substantially 
 the same as the German Ergaenzungssteuer, or supple- 
 mentary tax, except that the rate is higher. The division 
 of income into several categories was evidently suggested 
 by the English and Italian laws, while the principles of 
 abatement and differentiation have been worked out, to 
 some extent, along original lines.
 
 FRANCE 79 
 
 The radical change which the new law would bring 
 about in the French fiscal system is shown by its first 
 article which provides for abolishing the following 
 taxes : 5 
 
 1. The real estate tax on both improved and unim- 
 proved property. 
 
 2. The personal property tax. 
 
 3. The tax on doors and windows. 
 
 4. The license tax (patentes), business and pro- 
 fessional. 
 
 These four taxes, often referred to as "les quatre 
 vieilles" (the four old women), constitute the main 
 sources of revenue for the National Government, as will 
 appear by the following table in which the amounts which 
 they produce at present are compared with the amounts 
 which it is estimated could be secured from the same 
 sources by an income tax : 
 
 c Present yield Estimated yield 
 
 of tax of income tax 
 
 Real Estate (built upon) 91,000,000 fr. 98,000,000 fr. 
 
 Real Estate (not built upon) 105,000,000 " 45,000,000 " 
 
 Personal property 101,000,000 " 300,000,000 " 
 
 Doors and windows 66,000,000 " 
 
 Licenses 138,000,000 " 
 
 Interest and Dividends of French 
 
 securities 71,000,000 " 
 
 Interest and Dividends of foreign 
 
 securities 9,000,000 " 
 
 Transfer tax, stamp tax, etc 109,000,000 " 
 
 Profits of Commerce and Industry. . 110,000,000 
 
 Profits of Agriculture 7,000,000 
 
 Salaries and Pensions 7,000,000 
 
 Liberal professions 4,000,000 
 
 Supplementary tax 170,000,000 
 
 690,000,000 fr. 741,000,000 fr. 8 
 
 5 . The statement is often made that the proposed French law 
 substitutes an income tax law for all other taxes ; but such is not 
 the case. The Federal government retains some minor taxes, such 
 as the tax on billiard tables, clubs, horses and carriages, etc. 
 
 6 . _ In preparing this table the amounts in the first column, rep- 
 resenting the yield of the taxes which it is proposed to suppress,
 
 8O INCOME TAXATION 
 
 The manner in which incomes are classified and the 
 rate applicable to each class will be seen from the follow- 
 ing table : 
 
 /-],. Rate of Tax 
 
 (per cent.) 
 
 1. Income of real estate (built upon) 4 
 
 2. " " (not built upon) 4 
 
 3. personal property 4 
 
 4. commerce and industry 3.50 
 
 5. agricultural pursuits 3 
 
 6. salaries, fees and pensions 3 
 
 7. the liberal professions and all other lucrative 
 occupations not specified in the preceding classes 3 
 
 The above classes, or categories, as they are called in 
 the law, permit a differentiation between earned and un- 
 earned incomes. It was evidently considered that the 
 greater part of the income in classes 1, 2 and 3 was de- 
 rived from capital, and the rate is therefore higher. 
 Class 4 includes mixed incomes, that is those derived 
 partly from capital and partly from labor; while classes 
 5, 6 and 7 are given the lowest rate as being earned in- 
 comes, or incomes derived from personal exertion. 
 
 The rates which would otherwise be proportional are 
 given a progressive character in the lower grades by a 
 great number of exemptions and abatements, varying ac- 
 cording to the different classes. In general it is assumed 
 that 1,250 fr. ($241.25) is the minimum of existence, 
 
 are taken from the Expose des motifs, Chambre, session ordinaire, 
 No. 737, Journal Official, Feb. 17, 1907, and the estimate of the yield 
 of the income tax is that presented by the Minister of Finance at 
 the session of March 2, 1009. See L'Impot sur le Revenu, Adm. 
 Dalloz, p. 15. According to estimates made by Deputy Renault, the 
 supplementary tax (Impot complementaire) may be expected to 
 produce 150,000,000 francs.
 
 FRANCE 8 1 
 
 though in some cases the revenue above 625 fr. ($120.62) 
 is taxed. 
 
 A sharp distinction is drawn between total exemp- 
 tions at the bottom of the scale (degrevctncnts a la base) 
 and deductions or abatements from the taxable portion 
 of income (deductions sur la partic taxce du revenu). In 
 the first four of the classes given above there is no ex- 
 emption except in a few special cases where taxpayers 
 having a total income of less than 1,250 fr. are allowed 
 an exemption as to 625 fr. In the fifth class there is a 
 total exemption of incomes of farmers below 7 1,250 fr. 
 In the fifth and sixth classes generally the exemptions 
 may range from 1,500 to 3,000 fr., according to the size 
 of the city or commune in which the taxpayer has his 
 residence. 
 
 Thus : 
 
 In communes of 10,000 inhabitants or less the exemption is. .1,500 fr. 
 
 " " " 10,000 to 100,000 inhabitants 2,000 fr. 
 
 " " " more than 100,000 inhabitants 2,500 f r. 
 
 " Department of the Seine (Paris) the exemption is 3,000 fr. 
 
 This grading of the exemptions is calculated to 
 counterbalance to some extent the higher cost of living 
 in the larger cities. The justice and propriety of such a 
 differentiation is at once apparent and the plan is likely 
 to commend itself to other countries. 
 
 The abatements under the proposed law, may be in 
 accordance with scientific principles, but they are more 
 intricate and involved than is desirable in a law of such 
 general application. Complicated as they are by the 
 large number of schedules, the varying exemptions and 
 the abatements in the supplementary tax, they will render 
 it difficult for the average citizen to estimate the amount
 
 82 INCOME TAXATION 
 
 of income he is likely to be called upon to pay. It would 
 seem as though the same progression might have been 
 obtained in a simpler manner by changes of rates on the 
 smaller incomes. 
 
 There is no abatement in the first and third classes. 
 In the second, if the income exceeds 1,250 fr., but does 
 not exceed 5,000 fr. there is a reduction of 
 
 75% upon incomes up to 620 francs 
 
 50% " " between 620 and 1,000 francs 
 
 25% 1,000 " 1,250 
 
 In the fourth class, which embraces the joint product 
 of labor and capital, the allowances are larger, being (if 
 total income does not exceed 20,000 fr.) : 
 
 six-sevenths of the amount below 1,500 fr. 
 
 two-thirds of the portion between 1,501 and 2,500 fr. and 
 
 one-fourth " " 2,501 and 5,000 " 
 
 The fifth class relates to farmers, and abatements are 
 allowed, providing that the valeur locative rcelle (rental 
 value) does not exceed 12,000 fr. These abatements con- 
 sist of 
 
 two-thirds of the amount between 1,251 and 2,000 francs, 
 one-third " " 2,001 " 3,000 " 
 
 This may seem simple, but as the farmer's income is 
 reckoned at one-half of the rental value below 5,000 fr. 
 and two-thirds of the rental value above that sum, the 
 formula to determine the amount of tax in the case of a 
 farm having a rental value of 12,000 fr. would be 
 12000 (^ of 5000+1/3 of 7000) 1250 (2/3 of 
 750) (1/3 of 1000)X-03=152.50 francs. 
 
 In the fifth and sixth categories, which refer wholly 
 to the income from personal exertion the abatements are 
 
 five - sixths of the taxable income up to 3,000 francs, 
 
 four-sixths " " " " between 3,001 and 3,500 
 
 three-sixths" " " " " 3,501 " 4,000 " 
 
 two-sixths " " " " " 4,001 " 4,500 "
 
 FRANCE 
 
 140 
 125 
 110 
 
 Without going into the intricacies of the computations, 
 which must be reckoned separately for each grade, it may 
 be of interest to know that a person having a salary of 
 10,000 fr. (say $2,000), would pay a tax of 
 
 155 fr. ($31) if living in a commune of less than 10,000 inhabitants. 
 
 ($28) " " " " " 10,000 to 100.000 
 
 ($25) " " " " " over 100,000 
 
 ($22) " " " " Department of the Seine. 
 
 The Supplementary tax, known as "L'iinpot comple- 
 mentaire sur I' ensemble du revenu" is a tax of 5 per cent 
 upon the total income of each single individual, or head 
 of a family, in excess of 5,000 fr. regardless of its source 
 or of the exemptions and abatements applicable in other 
 cases. This tax is expected to contribute between one- 
 fourth and one-fifth of the whole amount raised by in- 
 come taxation. It is made progressive by a provision 
 that the 5 per cent rate shall apply to only 
 
 one - fifth of the income between 5,001 and 10,000 f r 
 
 10,001 " 15,000 ' 
 15,001 " 20,000 ' 
 20,001 " 25,000 ' 
 
 The extent to which these abatements affect the true 
 percentage is shown by the following table : 7 
 
 Actual Amount Amount Proportion 
 
 two-fifths 
 three-fifths " 
 four-fifths " 
 
 income 
 
 taxed 
 
 of tax 
 
 of tax to 
 
 Francs 
 
 Francs 
 
 Francs 
 
 actual income 
 
 5,000 
 
 
 
 
 
 
 6,000 
 
 200 
 
 10 
 
 0.16 per cent. 
 
 7,000 
 
 400 
 
 20 
 
 0.28 " 
 
 
 8,000 
 
 600 
 
 30 
 
 0.37 " 
 
 
 9,000 
 
 800 
 
 40 
 
 0.44 " 
 
 
 10,000 
 
 1,000 
 
 50 
 
 0.5 " 
 
 
 11,000 
 
 1,400 
 
 70 
 
 0.63 " 
 
 
 12,000 
 
 1,800 
 
 90 
 
 0.75 " 
 
 
 13,000 
 
 2,200 
 
 110 
 
 0.84 " 
 
 
 14,000 
 
 2,600 
 
 130 
 
 0.92 " 
 
 
 15,000 
 
 3,000 
 
 150 
 
 1. " 
 
 
 and so on 
 
 to 
 
 
 
 20,000 
 
 6,000 
 
 300 
 
 1.5 " " 
 
 100,000 
 
 85,000 
 
 4,250 
 
 4.25 " " 
 
 and to 
 
 
 
 
 1,000,000 
 
 985,000 
 
 49,250 
 
 4.92 " " 
 
 See L'Impot sur le Revenu. Administration Dalloz, p. 97.
 
 84 INCOME TAXATION 
 
 It will be seen by the above that, although the rate is 
 nominally 5 per cent, it varies from a very small fraction 
 of one per cent to a sum approximating but never quite 
 reaching five per cent. Combining this rate with that 
 of the first class, for example, would make the total rate 
 on very large incomes nearly 9 per cent. 
 
 The provisions for the administration of the law are 
 not as elaborate as in England and Germany, and it is 
 doubtful whether, in view of the temperament of the 
 French people, 8 they will prove as effective. In France, 
 as in every other country where an income tax has been 
 tried, the greatest difficulty has been to devise a plan for 
 ascertaining the income of each taxpayer, \vhich should 
 not seem too harsh and inquisitorial. The proposed law 
 provides for three methods : 
 
 1. Valuation by administrative officials. 
 
 2. Valuation made upon the basis of exterior signs. 
 
 3. Declaration by the taxpayer. 
 
 An example of the first method is seen in the plan by 
 which certain officials estimate the income from improved 
 real estate on the basis of rental value. An instance of 
 the second is found in the case of the supplementary tax 
 on non-residents ow r ning buildings, in which case the in- 
 come is assumed to be seven times the annnual rental 
 value of the building. Declarations are required from 
 all persons subject to the supplementary tax and are, in 
 most cases, a necessary pre-requisite to securing abate- 
 ments or correction of excessive valuations. The officials 
 
 8 . Cf. Parieti. Traite des Impots Vol. 1, p. 481. Vidal. L'lm- 
 pot sur la Revenu, Revue Internationale du Commerce de 1'Industrie 
 et de la Banque. Sept., 1904. Roche, L'Impot sur le Revenu, pp. 
 92, 146, 392.
 
 f 
 
 FRANCE 85 
 
 to whom is entrusted the administration of the tax are 
 prohibited from disclosing the information which they 
 obtain relating to incomes, except through official 
 channels. 
 
 In considering the proposed law as a whole one is 
 struck by the absence of adequate provisions for collect- 
 ing income at the source. 9 It would seem as though this 
 might possibly have been accomplished in respect to 
 rented property, salaries and pensions, though it would, 
 of course, result in many reclamations owing to the 
 numerous exemptions and abatements. 
 
 If the proposed law is finally passed 10 its operation 
 will be observed with interest by all students of political 
 economy; if it fails of passage it will still be instructive 
 as showing the conclusions which were reached by a large 
 body of intelligent men after mature study and delibera- 
 tion. 
 
 9 . In the case of the interest-bearing securities comprised in 
 the third category provision is made for enregistrement and for 
 collection par voie dc retinue (retention at source). See Articles 
 22 to 29 of the "projet de Loi" passed by the Chamber March 9, 1909. 
 10 . As an indication of the attitude of the Government toward the 
 proposed law, a recent utterance of M. Georges Cochery, Minister 
 of Finance, is significant. Speaking on behalf of the Government, 
 at a conference held with the Budgetary Commission, September 26, 
 1910, he stated that he would in no case consent that the law which 
 was passed by the Chamber should be mutilated or picked to pieces 
 (mutile ou morcele). Le Matin, September 30, 1910.
 
 CHAPTER VI. 
 
 GERMANY PRUSSIA. 
 
 The income tax laws in force in Germany have not 
 been formulated in any hasty or hap-hazard manner. 
 They reflect the best thought of scholars and publicists of 
 world-wide reputation. There is perhaps no other 
 country in which the subject of political economy in gen- 
 eral and that branch of it which relates to taxation in 
 particular, has received more careful, thorough-going and 
 exhaustive study than it has in Germany; and there is 
 probably no other country in which the conditions were 
 more favorable for the introduction of such a law. The 
 Germans are a patriotic as well as a law-abiding people 
 and realize that heavy taxes are necessary to meet the 
 ever increasing demands of their enormous military 
 establishment. The Klassensteuer, or class taxes, which 
 preceded the income taxes, while not based wholly upon 
 income, embodied the principles of classification and pro- 
 gressive taxation to such an extent that the German pub- 
 lic was prepared to accept the same principles with 
 equanimity when applied to an income tax. Moreover, 
 the advocates of socialism, who constitute a large portion 
 of the population, have always looked with favor upon 
 the progressive income tax as a measure which was likely 
 to bring about a more equal distribution of wealth.
 
 GERMANY PRUSSIA 87 
 
 But I would not like to be understood as intimating 
 the desirability of adopting the German income tax law 
 in this country, or as suggesting that equally successful 
 results could be looked for under conditions so essentially 
 different. The minuteness of the police supervision, the 
 strictness with which the laws are enforced and the com- 
 parative stability and permanence of business enterprise 
 in Germany, are all conditions which are peculiarly 
 favorable to the enforcement of an income tax law ; while 
 in this country the looseness and laxity with which our 
 laws are administered, the vast extent, complexity, 
 mobility and variety of business activities, and the greater 
 freedom of speech and action which we enjoy, all tend 
 to make the problem a much more difficult one. The 
 military service, which is required of nearly every Ger- 
 man citizen is calculated to impress very strongly upon 
 the soldiers the importance of prompt, absolute and un- 
 questioning obedience to constituted authority and the 
 lesson thus learned bears fruit in civic life, contributing 
 in no small degree to the successful administration of 
 the laws. 
 
 While mention is often made of the "German Income 
 Tax," the expression is, to say the least, misleading. The 
 German Empire as such does not levy any income tax. 1 
 The twenty-six states which since the Franco-Prussian 
 War of 1871-1872, have composed the German Empire, 
 all have complete or partial income taxes ; but the systems 
 which have been adopted are extremely varied, and it 
 can hardly be said that there is any feature of their in- 
 come tax laws which is of such general application as to 
 
 1 . Handwoerterbuch der Staatswissenschaften, Vol. Ill, 3d Ed. 
 (1909) p. 696.
 
 INCOME TAXATION 
 
 make it characteristically German. It is true that the 
 autonomy of the separate states as regards foreign rela- 
 tions is merged in that of the Empire; but on the other 
 hand, their sovereignty in respect of local government 
 and particularly in matters of taxation is fully recognized 
 by the Imperial Constitution. 
 
 There is nothing in the constitution of the German 
 Empire to prevent it from levying income taxes if it 
 should desire to do so; but it is not likely to enter the 
 field of income taxation which is already so fully oc- 
 cupied by the separate states. The lack of uniformity in 
 the various states is an evil which has made itself felt, 
 but the smaller political subdivisions are jealous of any 
 measure which would tend to greater centralization or 
 which would have the appearance of an encroachment 
 upon their time-honored source of revenue. 
 
 Prussia. It would lead too far afield to attempt a 
 complete analysis of all the systems in vogue in the differ- 
 ent German states and it has therefore seemed best to 
 devote one chapter to a somewhat detailed account of 
 the Prussian law, and another to an outline of the 
 methods followed in the smaller states. Prussia is the 
 most important, as it is one of the most progressive of 
 the German states. It includes more than half the 
 population of Germany 2 and although it was one of the 
 last of the States to adopt an income tax it has developed 
 a system which, while not free from defects, possesses 
 many excellent features. 
 
 2 . The population of Prussia at the end of the year 1905 was 37,- 
 293,323. See Statistisches Jahrbuch fuer den preussischen Staat for 
 the year 1909.
 
 GERMANY PRUSSIA 89 
 
 : 
 
 The Prussian income tax law now in force is based 
 upon the law of June 24, 1891, the law of July 14, 1893, 
 regulating the income tax to be levied by local bodies 
 municipal and rural (Kommunal 'Abgabengesetz), the 
 law of June 19, 1896, and the amendments of March 22 
 and May 26, 1909. The law, with the amendments, com- 
 prises over 100 paragraphs and the following is merely a 
 brief summary 3 of its most important provisions. 
 
 Who is liable to income tax. (Section 1) The first 
 three sections of the law are devoted to the duty of pay- 
 ing the tax subjectively considered (Subjektive Steuer- 
 pflicht). 
 
 1. Prussian subjects, except 
 
 a) Those who are not residents of Prussia, but re- 
 side in some other German state. 
 
 b) Those who, though living in Prussia, have an 
 official domicil in another German state. 
 
 c) Those who have permanently resided abroad for 
 more than two years. 
 
 2. Subjects of other German states domiciled in 
 Prussia, officially or otherwise. 
 
 3. Foreigners domiciled in Prussia or remaining in 
 Prussia for commercial purposes or those who have re- 
 sided in Prussia for one year. 
 
 4. Corporations, joint stock companies, mining com- 
 panies and registered societies or associations whose 
 commercial activity extends beyond the circle of their 
 members. 
 
 5. Co-operative societies, whether they do business 
 outside of the circle of their members or not. 
 
 6. Limited liability companies, except public cor- 
 porations and those which devote their income exclusive- 
 ly to charitable, scientific and artistic purposes. 
 
 3 . Translated and condensed from "Einkommenstenergesetz" by 
 A. Fernow, 7th Ed., dated 1908, but containing laws of March 22 
 and May 26, 1909.
 
 9O INCOME TAXATION 
 
 7. Without regard to nationality, domicil or length 
 of sojourn, persons receiving income from the Prussian 
 Government in the form of salaries, pensions, annuities, 
 etc., or deriving income from Prussian real property or 
 commercial or industrial institutions. 
 
 By Section 3 certain members of the royal family and 
 other nobility and certain accredited diplomatic repre- 
 sentatives are exempt from the operation of the tax. 
 
 What incomes taxable. (Sections 4 and 5) In con- 
 sidering the operation of the tax objectively (objektive 
 Steuerpflicht) the law first provides for certain exemp- 
 tions and exceptions. All incomes under 900 marks, 
 whether of persons or corporations are exempt, and there 
 is excepted from the operation of the law the income 
 derived : 
 
 1. From real estate or commercial undertakings in 
 other German states or from salaries, pensions or half -pay 
 of military or civil officials accruing to them from other 
 states. 
 
 2. By foreigners from real estate or industrial enter- 
 prises abroad, providing such foreigners are not residents in 
 Prussia for commercial purposes. 
 
 3. From military pay of non-commissioned officers and 
 from soldiers and other persons on the active list of the 
 army and navy. 
 
 4. From certain payments received by Imperial and 
 Prussian officials residing in foreign lands. 
 
 5. Payments which accrue as a result of insurance 
 against sickness. 
 
 6. Sinking funds. 
 
 What constitutes income. (Section 6) Income in- 
 cludes the total receipts of a person liable to pay the tax 
 in money or money's worth from 
 
 1. Capital. 
 
 2. Real estate and rents including rent value of the 
 habitation occupied by the owner.
 
 t 
 
 t 
 
 GERMANY PRUSSIA 9! 
 
 3. Commerce and trade, including mining. 
 
 4. All profitable occupations and rights to periodical 
 payments or monetary advantages which do not come under 
 heads 1, 2 and 3. 
 
 Extraordinary receipts, such as moneys received from 
 inheritance, gifts, life insurance or the sale of property 
 (the sale of property not being one's business), are not 
 considered as taxable income, but as an increase of the 
 capital ; and gains and losses in the amount of capital are 
 not considered, except in so far as by reason of them the 
 product of the capital is increased or diminished. 
 
 What to be deducted from gross income. ( Section 8 ) 
 From the gross income designated in Section 6 there 
 should be deducted the expenditures incurred for the 
 acquisition, security and maintenance of the income and 
 that which produces the income. 
 
 Under the head of expenses of production, the law 
 recognizes : 
 
 1. Contributions towards public irrigation works. 
 
 2. Amounts payable towards direct municipal taxation 
 by way of ground tax or building tax or industrial tax. 
 
 3. Contributions payable to official trade associations. 
 
 4. Amounts necessary to make good the ordinary wear 
 and tear of buildings and machinery. 
 
 There is also to be deducted from total income : 
 
 1. Interest payable on debts. 
 
 2. Annuities and permanent obligations due upon pri- 
 vate contracts or as an incident of church patronage. 
 
 3. Legal and contractual contributions towards insur- 
 ance against sickness, accident, old age, insurance for 
 widows and orphans, payments towards pension funds, pro- 
 vided, however, that the total amount for this purpose does 
 not exceed in any year 600 marks. 
 
 4. Payments made under contract for the gradual re- 
 duction of a mortgage debt, providing such payment does 
 not exceed one per cent, of the capital and the amount of 
 600 marks per annum.
 
 92 INCOME TAXATION 
 
 Among the items not deductable from income are : 
 
 1. Expenses incurred in improving and increasing the 
 original capital or source of income or in extending a busi- 
 ness. 
 
 2. Household expenses of the taxpayer and moneys 
 paid for support of those dependent upon him and especially 
 all expenses for the gratification of personal needs, such as 
 rent of house, food, clothing, service, attendance, education, 
 including the value of annual products used towards these 
 ends. 
 
 Period for which income reckoned. (Section 9) A' 
 distinction is made in this section between persons and 
 corporations, and a further distinction is made between 
 the gains from business in trade, commerce and mining 
 by persons bound to keep commercial books, and other 
 incomes. The law seems to contemplate first that the in- 
 come of a natural person shall be determined upon the 
 basis of the status of the various sources of his income 
 at the beginning of the taxing year. It is then provided 
 that profits in trade, commerce and mining made by per- 
 sons who are bound to keep books shall be assessed by the 
 average of the three working years immediately preced- 
 ing the year in which the tax is levied. If books have 
 been kept for a shorter period only, the income may be 
 estimated upon the average of such shorter period and, 
 in calculating this average, losses in any year may be de- 
 ducted from the profit of the other years. In practice 
 the assessment may be said to rest generally in all other 
 cases upon the working result of the year immediately 
 preceding the fiscal year. The method of averaging for 
 three years may be extended to farming operations, if 
 proper books are kept of the receipts and expenses. The 
 assessment of corporations is based upon the average 
 results of the three working years preceding. Liability
 
 GERMANY PRUSSIA 93 
 
 of corporations to pay income tax begins only from the 
 time when a surplus exists; and the assessment operates 
 from the first of the month immediately succeeding this 
 acquired profit. Incomes of corporations other than com- 
 panies with limited liability are composed of the profits 
 which are divided in the form of dividends. Amounts 
 used to pay off debts or the original capital, or used for 
 the improvement or extension of the business, or for the 
 formation of a reserve fund (except in the case of in- 
 surance companies), in so far as they exceed 3j/2 per 
 cent of the paid-up capital, are reckoned as income. The 
 taxable income of companies with limited liability con- 
 sists of the working profits of the company. 
 
 Section 10 provides that the head of the household 
 shall be assessed upon his own income and that the in- 
 come of his wife shall be included unless she is per- 
 manently separated from him, in which case it is assessed 
 to her, and the income of the children is also included in 
 so far as it is controlled or used by the parents. 
 
 Section 11 defines at some length the various forms 
 of income from capital. 
 
 Section 12 is chiefly devoted to the methods of esti- 
 mating incomes from real estate and ground rents. A 
 peculiar provision of that section relates to such forests 
 as are not managed upon a systematic plan. The receipts 
 from such forests are not reckoned as income unless 
 they exceed one-tenth of the total value of the timber. 
 
 Section 13 is devoted to an analysis of income re- 
 ceived from trade, commerce and mining, while Section 
 14 gives a more extended definition of what is meant by 
 income from profitable occupations and periodical pay- 
 ments or pecuniary benefits.
 
 94 
 
 INCOME TAXATION 
 
 Section 15 relates to the methods of ascertaining the 
 incomes of stock companies in general, while Section 16 
 defines net income of limited liability companies. 
 
 Rates of Taxation. The scale of rates provided for in 
 Section 17 applies to all incomes, except those earned by 
 limited liability companies. For the sake of uniformity 
 and to make the table more useful we have added the 
 amounts in American money and computed the percent- 
 ages : 
 
 
 Income 
 
 Marks Dollars Marks 
 
 900 
 
 ($ 214) to 1,050 
 
 Over 1,050 
 
 ( 250) " 1,200 
 
 1,200 
 
 ( 286) " 1,350 
 
 
 1,350 
 
 ( 321) " 1,500 
 
 
 ' 1,500 
 
 ( 357) " 1,650 
 
 
 1,650 
 
 ( 393) " 1,800 
 
 
 1,800 
 
 ( 428) 
 
 2,100 
 
 
 2,100 
 
 ( 500) 
 
 ' 2,400 
 
 
 2,400 
 
 ( 571) 
 
 ' 2,700 
 
 
 2,700 
 
 ( 643) 
 
 ' 3,000 
 
 
 3,000 
 
 ( 714) 
 
 ' 3,300 
 
 
 3,300 
 
 ( 785) 
 
 ' 3,600 
 
 
 3,600 
 
 ( 857) 
 
 ' 3,900 
 
 
 3,900 
 
 ( 925) 
 
 ' 4,200 
 
 
 4,200 
 
 ( 1,000) ' 4,500 
 
 
 4,500 
 
 ( 1,071) " 5,000 
 
 
 5,000 
 
 ( 1,190) 
 
 5,500 
 
 
 5,500 
 
 ( 1,309) 
 
 ' 6,000 
 
 
 6,000 
 
 ( 1,428) 
 
 ' 6,500 
 
 
 6,500 
 
 ( 1,547) 
 
 ' 7,000 
 
 
 7,000 
 
 ( 1,666) 
 
 ' 7,500 
 
 
 7,500 
 
 ( 1,785) 
 
 ' 8,000 
 
 
 8,000 
 
 ( 1,904) 
 
 ' 8,500 
 
 
 8,500 
 
 ( 2,033) 
 
 ' 9,000 
 
 
 9,000 
 
 ( 2,142) 
 
 ' 9,500 
 
 9,500 
 
 ( 2,261) ' 10,500 
 
 Tax Percentages 
 Marks Dollars 
 
 6 
 
 ( 1-43) 
 
 .66 to .57 
 
 9 
 
 ( 2.14) 
 
 .85 " .76 
 
 12 
 
 ( 2.86) 
 
 1. " .88 
 
 16 
 
 ( 3.81) 
 
 1.18 " 1. 
 
 21 
 
 ( 5. ) 
 
 1.4 " 1.27 
 
 26 
 
 ( 6.19) 
 
 1.57 " 1.44 
 
 31 
 
 ( 7.38) 
 
 1.72 " 1.47 
 
 36 
 
 ( 8.63) 
 
 1.71 
 
 r 1.5 
 
 44 
 
 (10.47) 
 
 1.83 
 
 1.63 
 
 52 
 
 (12.37) 
 
 1.92 
 
 1.73 
 
 60 
 
 (14.28) 
 
 2. 
 
 1.81 
 
 70 
 
 (16.66) 
 
 2.12 
 
 1.94 
 
 80 
 
 (19.04) 
 
 2.22 
 
 2. 
 
 92 
 
 (21.90) 
 
 2.35 
 
 2.19 
 
 104 
 
 (24.75) 
 
 2.45 
 
 ' 2.31 
 
 118 
 
 (28.08) 
 
 2.62 
 
 2.36 
 
 132 
 
 (31.12) 
 
 2.64 
 
 2.4 
 
 146 
 
 (34.75) 
 
 2.65 
 
 2.43 
 
 160 
 
 (38.08) 
 
 2.66 
 
 2.46 
 
 176 
 
 (41.88) 
 
 2.7 
 
 2.51 
 
 192 
 
 (45.80) 
 
 2.74 
 
 2.56 
 
 212 
 
 (50.46) 
 
 2.82 
 
 2.65 
 
 232 
 
 (55.22) 
 
 2.9 
 
 2.73 
 
 252 
 
 (59.98) 
 
 2.96 
 
 2.8 
 
 276 
 
 (65.69) 
 
 3.06 
 
 2.9 
 
 300 
 
 (71.40) 
 
 3.15 2.85 
 
 The tax rises from these rates in the case of higher 
 incomes as follows : 
 
 Incomes 
 exceeding 
 
 Marks 
 
 30,500 
 
 30,500 
 
 32,000 
 
 78,000 
 
 To 
 
 inclusive 
 
 Marks 
 
 30,500 
 
 32,000 
 
 78,000 
 
 100,000 
 
 In grades 
 of 
 
 Marks 
 1,000 
 1,500 
 2,000 
 2,000 
 
 The tax is 
 
 increased by 
 
 Marks 
 
 30 
 
 60 
 
 80 
 
 100
 
 GERMANY PRUSSIA 
 
 95 
 
 In the case of incomes above 100,000 m. to 105,000 
 m. inclusive, the tax amounts to 4,000 m. and from that 
 point it rises at the rate of 200 m. for every additional 
 grade of 5,000 m. 4 
 
 In the case of companies with limited liability the 
 rates are as follows : 
 
 For incomes 
 
 exceeding 
 
 Marks 
 
 900 
 1,050 
 1,200 
 1,350 
 1,500 
 1,650 
 1,800 
 2,100 
 2,400 
 2,700 
 3,000 
 3,300 
 3,600 
 
 To For incomes 
 
 (inclusive) Tax exceeding 
 Marks Marks Marks 
 
 1,050 
 1,200 
 1,350 
 1,500 
 1,650 
 1,800 
 2,100 
 2,400 
 2,700 
 3,000 
 3,300 
 3,600 
 3,900 
 
 6 
 
 10 
 14 
 18 
 24 
 30 
 36 
 42 
 48 
 56 
 66 
 76 
 86 
 
 3,900 
 4,200 
 4,500 
 5,000 
 5,500 
 6,000 
 6,500 
 7,000 
 7,500 
 8,000 
 8,500 
 9,000 
 9,500 
 
 To 
 
 
 (inclusive) 
 
 Tax 
 
 Marks 
 
 Marks 
 
 4,200 
 
 96 
 
 4,500 
 
 112 
 
 5,000 
 
 132 
 
 5,500 
 
 148 
 
 6,000 
 
 164 
 
 6,500 
 
 180 
 
 7,000 
 
 200 
 
 7,500 
 
 220 
 
 8,000 
 
 240 
 
 8,500 
 
 260 
 
 9,000 
 
 280 
 
 9,500 
 
 300 
 
 10,500 
 
 340 
 
 The tax rises in the case of higher incomes as fol 
 lows: 
 
 Incomes 
 exceeding 
 Marks 
 10,500 
 46,500 
 48,000 
 
 To 
 
 inclusive 
 Marks 
 46,500 
 48,000 
 100,000 
 
 For every 
 
 Marks 
 
 1,000 
 
 1,500 
 
 2,000 
 
 The tax is 
 increased by 
 Marks 
 40 
 60 
 100 
 
 In the case of incomes from 100,000 m. to 104,000 m. 
 inclusive, the tax amounts to 4,600 m. It rises in the 
 
 4 . It will be noticed that the rate is regressive from the per- 
 centage standpoint as to the amounts in any one of the first 26 grades. 
 For example, in the case of the third grade embracing incomes of 
 from 1,200 to 1,350 M. the tax of 12 m. would be one per cent of 
 the first amount, but would be only eight-tenths of one per cent, of 
 the latter amount. In one case even the grades are partly regressive 
 so that 2,100 M. in the eighth grade really pays a smaller per cent, 
 than 1,800 M. in the preceding grade. In the higher grades the tax 
 is intended to approximate four per cent. The rate is proportional 
 (at three per cent.), from 9,500 to 30,500 m., as to the arithmetical 
 mean of the extremes of each grade. For incomes over 100,000 m. 
 the rate is proportional at four per cent, on the lowest amount of 
 each grade.
 
 96 INCOME TAXATION 
 
 case of higher incomes, for every grade of 4,000 m. by 
 180 marks. 
 
 Abatements. Section 19 provides that if a person is 
 assessed for a taxable income of not more than 3,000 m. 
 ($714) and is legally bound to support children or other 
 relatives, a reduction of 50 m. ($12) from the taxable 
 income is granted for each such member of the family. 
 When three or more such members have to be supported 
 the reduction amounts to a full grade of the table of 
 rates ; and when there are five or more such members the 
 reduction amounts to two grades. In case the income is 
 between 3,000 m. and 6,500 m. there is a reduction of one 
 grade in case three or four children or relatives have to 
 be supported and of two grades if the number is five or 
 more. 5 In fixing the number of members of the family 
 which are to be considered under this section, the wife is 
 not included, nor are those children above the age of 
 fourteen years, who are permanently occupied in the 
 agricultural or industrial enterprise of the person as- 
 sessed, or who enjoy an income of their own of more 
 than half the ordinary local wage calculated with due re- 
 gard to age and sex. 
 
 Under Section 20 in fixing the amount of taxable in- 
 come of any person whose income does not exceed 9,500 
 m., the assessing officials are authorized to take into con- 
 
 5 . Section 19 has been amended by the law of May 26, 1909, so 
 that persons whose income does not exceed 6,500 m. are entitled to 
 a reduction of one grade if they have two children or other relatives 
 whom they are legally bound to support. If the number of depend- 
 ents is three or four the reduction is two grades ; if five or six, three 
 grades ; and allowance of one grade is made for each dependent 
 above six. For persons having incomes of more than 6,500 m., but 
 not exceeding 9,500 m., the abatement is one grade for three de- 
 pendents, two grades for four or five and one grade for every two 
 additional.
 
 GERMANY PRUSSIA 97 
 
 sideration any unusual conditions which aave arisen to 
 affect unfavorably the source of income, arid to grant 
 abatements accordingly, but not to exceed three grades. 
 The conditions which might thus be taken into considera- 
 tion consist only of extraordinary burdens which arise in 
 connection with the support and education of children or 
 in connection with the duty of supporting impecunious 
 relatives or from continued illness or other especially 
 serious calamities. 
 
 Assessment. The portion of the law which relates to 
 the assessment and levy of the tax, comprising Sections 
 21 to 60, is very carefully worked out and contains many 
 excellent features. As the first step of the proceeding, the 
 official head of every community (Gemeinde- odcr Guts- 
 V or stand) must prepare a complete list of all persons and 
 corporations or legal entities within his district who are 
 liable for the payment of income tax; also of all real 
 properties and commercial enterprises within the district 
 for which income tax is payable by non-residents. Every 
 owner of occupied premises, or his representative, must 
 supply the official in question with a schedule of the per- 
 sons living upon such property, their names, occupations, 
 date and place of birth, and religion; and, in case of work- 
 men, servants and apprentices giving also the name of 
 the employer and the place of employment. For this pur- 
 pose every head of a household is required to supply the 
 owner of the occupied premises with a schedule of the 
 persons in his charge (including those who are residents 
 away from home, as pupils, apprentices, etc.). Work- 
 men, servants and business employees are bound to supply 
 the head of the household with the necessary information 
 concerning their employers and place of employment.
 
 9 INCOME TAXATION 
 
 Whoever permanently employs in his household or in 
 connection with his profession or trade other persons to 
 whom he pays salaries or wages is required, if that in- 
 come so paid does not exceed the sum of 3,000 m., to 
 make return thereof to the official head of the munici- 
 pality or community within whose district his trade or 
 profession is carried on, and the requirements of such 
 return are set forth in detail. 
 
 On the strength of the information thus derived the 
 official heads of the various communities make returns of 
 the probable income of all those persons within their dis- 
 trict who are liable to pay income tax. 
 
 Declaration of income. Every person enjoying an 
 income in excess of 3,000 m., which is liable to income 
 tax, is notified by public advertisement and thereby re- 
 quired to make declaration on special forms within a 
 stated limited period. For corporations, the declaration 
 must be accompanied by annual reports, minutes of gen- 
 eral meetings relating to same, etc. Limited liability 
 companies also are bound to hand in their balance sheets, 
 and the income derived from such companies must be 
 separately returned. If any abatements or reductions are 
 demanded they must be noted also in the return. In case 
 it should become necessary to estimate the income, the 
 declaration may be accompanied by documents certifying 
 the estimate to be correct. If the return is not made with- 
 in the period limited by the authorities, a fine is incurred 
 amounting to 5 per cent of the income tax payable and 
 this fine increases to 25 per cent when a second period, 
 fixed by the authorities, has been disregarded. The de- 
 clarations of income of persons under parental control or
 
 GERMANY PRUSSIA 99 
 
 under guardianship, and those for corporations are made 
 by the proper representatives. 
 
 The next step in the proceeding is a provisional or 
 preliminary assessment made by a special board ( Vorein- 
 schaetzungskonimission}or Preliminary Assessment Com- 
 mission, which considers the incomes below 3,000 m. 
 This is followed by a general assessment commission 
 (Veranlagungskommission) presided over by a govern- 
 ment official whose work is chiefly concerned with the 
 incomes above 3.000 m. From the decision of this com- 
 mission there is a provision for appeal to the Assessment 
 Commission (Einschaetzungskonimission} and then to 
 an Appeal Board (Berufungskommission) ; and in case 
 of incomes exceeding 3,000 m. to the Oberverwaltungs- 
 gericht, a higher Appeal Court. 
 
 Fluctuation of income. By Sections 61 to 66 pro- 
 vision is made for any great or unusual changes in in- 
 come, but a reduction of income of less than one-fifth is 
 not considered. 
 
 Payment of Taxes. The tax is payable quarterly, 
 within the first half of the second month of each quarter. 
 These payments cannot be delayed through claims for re- 
 dress, but may be made under protest. 
 
 Municipal income tax. In addition to what might 
 be called the government income tax there are municipal 
 income taxes which are assessed at a certain percentage 
 of the government tax and constitute an addition of from 
 100 to 200 per cent. The average amount thus levied, in 
 upwards of thirty of the most important Prussian cities, 
 was 154 per cent of the government tax, so that upon an 
 income of 100,000 m. the two taxes together would 
 amount to about 10 per cent. It is estimated that these
 
 IOO INCOME TAXATION 
 
 municipal income taxes yield 48-j/2% of the total taxes 
 raised for municipal purposes in the cities where they are 
 levied. 
 
 Supplementary taxes. In addition to the income tax 
 proper there is the Ergaensungssteuer (supplementary 
 and complementary tax) sometimes called the Ver- 
 moegenssteuer, or wealth tax. This tax was provided 
 for by the law of July 14, 1893, which has been in force 
 since April 1, 1895. It was designed as a substitute 
 for the three forms of taxation w r hich the general 
 Government released to the provinces, to-wit : 
 
 1. Grundsteuer (Real estate tax). 
 
 2. Gebaeudesteuer (House tax). 
 
 3. Gewerbesteuer (Tax on industries). 
 
 The tax is levied upon persons liable to income tax 
 and is based upon the ensemble of wealth in real and per- 
 sonal property of every kind, thus corresponding very 
 closely with the impot complementaire in the proposed 
 French law. 
 
 There are certain deductions, such as debts, entail 
 charges, household furniture, etc. The following per- 
 sons are exempt from the tax : 
 
 a. Those whose taxable property does not exceed 
 6,000 m. 
 
 b. Those whose annual income does not exceed 
 900 m. and whose total property is not worth 20,000 m. 
 
 c. Women, orphans, etc., in certain cases, if their 
 income does not exceed 1,200 m. and the value of their 
 property is less than 20,000 m. 
 
 Without attempting a full description of this tax, 
 which is only to a partial extent a tax on income, it will 
 perhaps suffice to say that the rate is one-half mark per
 
 GERMANY PRUSSIA IOI 
 
 thousand on the lowest amount of each one of a large 
 number of grades. On the broad assumption that prop- 
 erty or wealth yields an income of 4 per cent the tax 
 would work out at a rate of about 1^4 per cent, or, under 
 the new law, a little over \y 2 per cent. The amount 
 realized by this tax has been about one-sixth of the 
 amount raised by the income tax proper. 
 
 Super-tax. To meet a deficit of "soine fifty million 
 marks, the Government undertook to raise 'aoout half of 
 this sum from additions to the income: tax' arid the 're- 
 mainder from stamp duties and other sources. The addi- 
 tions (Zuschlaege) to the income tax are percentual and 
 are levied in this form in order that they shall not become 
 a basis for increased municipal income taxation. This tax 
 is in the nature of a "tax upon a tax" and is only tempor- 
 ary and provisional until a complete reorganization of the 
 system of direct state taxation can be accomplished. The 
 Government has undertaken to effect such reorganization, 
 involving, for example, a more systematic and scientific 
 progression, within three years. The percentages levied 
 may be seen from the following table : 
 
 Incomes To Physical Non-physical persons 
 
 exceeding inclusive persons Limited Share Companies 
 
 (Marks) (Marks) Liability Share partnerships 
 
 Companies Mining Companies 
 
 1,200 3,000 5% 7.5% 10% 
 
 3,000 10,500 10" 15 " 20" 
 
 10,500 20,500 15" 22.5" 30" 
 
 20,500 30,500 20" 30 " 40" 
 
 30,500 25" 40 " 50" 
 
 Supplementary tax 25 " 
 
 The rates are not as excessive as might, at first glance, 
 be supposed. For example, the regular income tax on an 
 income of 3,000 m. would be 60 m. and the super-tax of 
 20 per cent would be one-fifth of that sum, or 12 m.,
 
 IO2 
 
 INCOME TAXATION 
 
 bringing the total income tax up to 72 m. ($20). The 
 highest rate would not exceed 6 per cent, that is, 4 per 
 cent plus 50 per cent of 4 per cent. The amount of this tax 
 for the year 1909 was 46,400,000 m. ($11,000,000). 
 
 Increment tax. A number of the larger cities in Ger- 
 many have levied a Wertzuwachssteuer, or tax on the so- 
 called unearned increment in land values, designed 
 f:c reach ' accretions of income which result from 
 advances in land values. For example in Cologne, under 
 : a law" passed in 190-5;' there is a tax on the increased value 
 of real estate since the date of the last transfer, if such 
 increase exceeds 10 per cent, and this increment tax is 
 calculated according to the following scale : 
 
 A. Where not more than five years have elapsed since 
 a previous change of ownership : 
 
 If the increase in value exceeds 
 
 10%, but not 20%, the rate of tax is 10% of the increase 
 
 20%, 
 30%, 
 
 
 30%, 
 40%, 
 
 
 
 a a i 
 
 11% 
 12% 
 
 40%, 
 
 
 50%, 
 
 
 
 13% 
 
 50%, 
 60%, 
 
 
 60%, 
 70%. 
 
 
 
 a ii i 
 
 14% 
 15% 
 
 70%, 
 80%, 
 90%, 
 100%, 
 
 
 80%, 
 ' 90%, 
 ' 100%, 
 ' 110%, 
 
 
 
 n a i 
 
 16% 
 
 17% 
 18% 
 19% 
 
 110%, 
 120%, 
 
 < 
 
 ' 120%, 
 ' 130%, 
 
 
 
 a a ,i 
 
 20% 
 
 21% 
 
 130%, 
 140%, ' 
 150%, ' 
 
 
 ' 140%, 
 ' 150%, ' 
 ' 160%, ' 
 
 i a 
 
 a a a 
 
 22% 
 23% 
 24% 
 
 If the increase in value exceeds 160%, the rate of tax is 25% of 
 the increase. 
 
 B. When more than five years, but not more than ten 
 years, have elapsed since the previous change of owner- 
 ship, two-thirds of the above rates are levied.
 
 GERMANY PRUSSIA 103 
 
 C. Where more than 10 years have elapsed, one-third 
 of the rates. This tax is in addition to a transfer tax 
 (Umsatesteuer*) of 2 per cent. G 
 
 A bill has been introduced in the Reichstag which 
 abolishes all taxes of the class above described imposed 
 by mimicipalites and which substitutes a general unearned 
 increment tax. The revenue from this tax is to be 
 divided into three parts, 40 per cent going to the munici- 
 palities, 10 per cent to the provinces and 50 per cent to 
 be retained by the Imperial government. As originally 
 introduced, the bill provided for a graduated tax ranging 
 from oj/2 per cent where the increased values did not ex- 
 ceed 10 per cent, to 12 per cent where the unearned in- 
 crement was above 400 per cent. This bill was referred 
 to a special commission which held several sessions in the 
 month of May, 1910, and revised the law in numerous 
 particulars. It is not expected, however, that the bill will 
 come before the full assembly of the Reichstag for action 
 until autumn. 7 
 
 Financial Results. Before giving any statistical re- 
 sults it may be well to mention the fact that the popula- 
 tion of Prussia, according to the census of 1905, was 
 37,293,324, 8 which corresponds quite closely with the 
 population of the United States during the later years of 
 the Civil War income tax period. 9 The wealth of Prussia 
 has been recently estimated at about 130 billion marks 
 
 8 . The amount raised by this tax has thus far been insignificant. 
 Seligman, Progressive Taxation, p. 55. 
 
 See also Taxation of Land, etc., (English Blue Book) C.D. 4750, 
 p. 15. 
 
 7 . Frankfurter Zeitung, May 6, 7 and 12, 1910. 
 
 8 . Statistisches Jahrbuch fuer den preussischen Staat, (for the 
 year 1909), p. 2. 
 
 9 . The population of the United States in 1870 was 38,558,371.
 
 IO4 INCOME TAXATION 
 
 ($30,940,000,000), 10 while that of the United States in 
 1870 was placed at $24,054,814,806," which was prob- 
 ably too low, being based wholly on assessed valuations 
 for taxation. 
 
 The amount of the Prussian income tax (including 
 the supplementary tax) as shown by the budgets of the 
 past few years was, in round numbers : 
 
 Years Marks Dollars 
 
 1906 237,500,000 55,925,000 
 
 1907 261,000,000 62,118,000 
 
 1908 284,300,000 67,667,400 
 
 1909 359,000,000 87,822,000 12 
 
 The place which the income tax fills in the fiscal sys- 
 tem of Prussia will be seen by comparison with the fol- 
 lowing amounts : 
 
 The three chief sources of revenue of the Prussian 
 States for 1909 were (net) : 
 
 State railways 415,168,620 
 
 Other sources 108,527,866 
 
 523,696,486 
 
 Taxation 423,874,100 
 
 Total 947,570,586 marks 
 
 It therefore appears that the income tax contributed 
 nearly 84.7 per cent of the Federal taxes and 37.8 per 
 cent of the three items above. 13 Leaving out the supple- 
 mental tax and including the super-tax the amount of in- 
 come tax for the year 1909, was 326,874,962 m. or 
 
 10 . Le Marche Financier by Arthur Raffalowich, 1908-1909, p. 
 104. 
 
 ". United States Census Report, Wealth, 1904, p. 31. 
 
 12 . Statistisches Jahrbuch, 1909, pp. 238-239. 
 
 13 . The total gross revenue of Prussia for 1909 is given in the 
 Jahrbuch (p. 241), as 3,495,440,000 Marks, but a comparison with 
 this amount would be futile as nearly half this sum is expended for 
 the operation of railroads alone. We have been unable to find 3 
 reliable estimate of the net income for the year in question.
 
 GERMANY PRUSSIA IO5 
 
 $77,796,240. This sum was an increase of 56,266,610 
 m. or, 20.79 per cent over the preceding year. 14 
 
 The total amount of income tax levied in 1909 fell 
 upon 
 
 3,875,751 taxpayers in cities who paid 249,190,000 m. 
 
 2,231,870 " " the country who paid 77,680,000 " 
 
 6,107,621 326,870,000 " 
 
 The taxable income amounted to 14,030,940,000 m., 
 or $3,339,363,720, being an average of 2,653 m. for each 
 taxpayer residing in the cities and 1,835 m. for those 
 living in the country. 
 
 The increase in the amount of income tax levied since 
 the year 1892, has been 127.55 per cent, or, on the basis 
 of taxes raised (including the super-tax or Zuschlags- 
 teuer} 161.83 per cent. 
 
 Of the total number of taxpayers there were 
 
 Natural persons 6,099,422 
 
 Artificial persons (corporations, etc.) 8,199 
 
 Total 6,107,621 
 
 The natural persons who paid income tax constituted 
 16.36 per cent of the total population of the Kingdom. 15 
 
 The number of persons whose income did not exceed 
 900 m. ($214) was 17,669,438. 
 
 The number of persons who paid income tax, together 
 with the relatives, etc., dependent upon them, was 
 18,850,291. 
 
 14 . Mittheilung aus der Verwaltung der direkten Stettern in 
 preussischen Staate. Statistik der preussischen Einkommensteuer- 
 Veranlagung fuer das Steuerjahr. 1909, p. 1. 
 
 15 . Compare this with the United States, where, during the 
 four years, 1867-1870, the average number who paid income tax was 
 267,564, or about two-thirds of one per cent of the population.
 
 IO6 INCOME TAXATION 
 
 The increase in the number of taxpayers from 1907 
 to 1908 was nearly half a million, while from 1908 to 
 1909 it was 223,248. 
 
 If we classify the natural persons who paid income 
 tax according to the grades in which they were assessed 
 the following results are shown : 
 
 Income Group 
 
 Number of 
 
 
 Marks 
 
 Marks 
 
 Dollars 
 
 Taxpayers 
 
 Per cent 
 
 900 to 
 
 3,000 
 
 ( 214 to 
 
 714) 
 
 5,477,856 
 
 89.81 
 
 3,000 " 
 
 6,500 
 
 ( 714 " 
 
 1,547) 
 
 436,501 
 
 7.16 
 
 6,500 " 
 
 9,500 
 
 (1,547 " 
 
 2,261) 
 
 78,070 
 
 1.28 
 
 9,500 " 
 
 30,500 
 
 (2,261 " 
 
 7,259) 
 
 85,158 
 
 1.40 
 
 30,500 " 
 
 100,000 
 
 (7,259 " 
 
 23,800) 
 
 18,019 
 
 0.30 
 
 over 
 
 100,000 
 
 
 
 3,818 
 
 0.06 
 
 The above table shows that about nine-tenths of the 
 people who pay income taxes are assessed for incomes of 
 less than 3,000 m. 16 
 
 16 . For statistics of the year 1907, see Revenues from the 
 Prussian Income Tax, by Consul General Richard Guenther, in 
 United States Consular Report No. 334, p. 154, July, 1908. Also, 
 Operation of the income tax in the State of Prussia by Vice-Consul 
 Risdorf, United States Consular Report No. 346, p. 27, July, 1909.
 
 CHAPTER VII. 
 
 GERMANY. 
 
 MINOR GERMAN STATES. 
 
 The experiences of the smaller German States with 
 income taxation are extremely interesting; but anything 
 like a full account of them would fill a bulky volume and 
 this chapter will show only the more notable peculiarities 
 and characteristics of each system. 
 
 Alsace Lorraine. The task of gradually transforming 
 the French system of direct taxes, which prevailed in 
 Alsace Lorraine, into a general scheme approximating 
 more nearly that of the other German states, has been a 
 long one and is not fully completed. During the nine 
 years from 1892 to 1901, a series of laws was passed, 
 some of which were preparatory and some executory, 
 having for their object the substitution of the Kapital- 
 steuer (tax on income from capital), Lohn-und Besold- 
 ungssteuer (wages and salaries tax) and a lower Grund- 
 steuer (real estate tax), for the "contribution personelle 
 et mobilier," "patentes" and "I'impot fonder" which 
 were features of the French system. 1 The chief laws 
 affecting the income tax were those of May 20, 1901, 
 and Nov. 14, 1905. 
 
 x . Roche. L'impot sur le Revenu, p. 57.
 
 IO8 INCOME TAXATION 
 
 The Kapitalsteuer is designed to reach unearned in- 
 comes, and the Lohn- und Besoldungssteuer applies to 
 earned incomes. The latter tax however is not of uni- 
 versal application as it rests only on personal earnings 
 and receipts not already taxed. 
 
 There is a fixed rate of 1.90 per cent which is rend- 
 ered progressive by a series of decreasing abatements. 
 In the lower grades the tax is levied on a certain per- 
 centage of the mean of the two amounts of income which 
 constitute the grade. For example, in the fourth grade 
 of 700 m. to 800 m., the tax consists of 1.90 per cent 
 of 15 per cent of the mean of that grade (750 m.) which 
 would be 2.14 marks. This will appear more plainly by 
 the following extracts from the table of rates : 
 
 No. of 
 
 Income 
 
 
 Percentage of 
 
 Amount of 
 
 Grade 
 
 (Marks) 
 
 Mean 
 
 income taxed 
 
 tax (Marks) 
 
 1 
 
 Under 500 
 
 250 
 
 10 
 
 .47 
 
 2 
 
 500 to 600 
 
 550 
 
 10 
 
 1.04 
 
 3 
 
 600 " 700 
 
 650 
 
 10 
 
 1.23 
 
 4 
 
 700 " 800 
 
 750 
 
 15 
 
 2.14 
 
 * 
 
 * * 
 
 * 
 
 * 
 
 * 
 
 10 
 
 2,000 " 2,500 
 
 2,250 
 
 30 
 
 12.82 
 
 * 
 
 * * 
 
 * 
 
 * 
 
 * 
 
 16 
 
 6,000 " 7,000 
 
 6,500 
 
 60 
 
 74.10 
 
 * 
 
 * * 
 
 * 
 
 * 
 
 * 
 
 22 20,000 " 25,000 22,500 100 427.50 
 
 In cases where income from all sources is less than 
 700 m. the tax is not levied. The taxable unit, sub- 
 jectively, is the household; but members of the house- 
 hold, whose incomes do not reach 500 m. are not con- 
 sidered, nor does the amount help to swell the aggregate. 
 
 Although the Alsatian system is only a partial income 
 tax the estimated receipts from it for 1908 were 1,900,- 
 000m. ($452,200). 
 
 Anhalt. Since 1904 this province has had a progres- 
 sive income tax which comprises 29 grades. The first 
 and lowest grade is from 600 m. ($142.80) to 750 m.
 
 MINOR GERMAN STATES 109 
 
 and the unit of taxation is 0.15 per cent of a mark (15 
 Pfennige). The twenty-ninth grade includes incomes of 
 11,000 m. to 12,000 m. for which the tax unit is 11.25 m. 
 From this point for each 1,000 m. of additional income 
 the tax is increased by 125 m. up to 59,000 m., and from 
 59,000 m. to 100,000 m. by 150 marks. 
 
 There is also a trade tax and an investment tax 
 (Kapitalrentensteiier), the former of which is levied on 
 all business undertakings whose profits amount to 10,000 
 m. or more and is laid at the rate of one per cent up to 
 110,000 m., thence rising at the rate of one-tenth of one 
 per cent for each 10,000 m. up to 200,000 m. where it 
 reaches a uniform rate of two per cent. The investment 
 tax begins at 5,000 m. to 5,500 m. with a tax of 24 m. 
 rising gradually to a tax of 195 m. on incomes from 
 12,500 to 13,000 marks. Incomes above that sum pay one 
 and one-half per cent. 
 
 Baden. The chief peculiarity of the law in this pro- 
 vince which had its beginning in 1884, is the extent to 
 which the rates are rendered progressive by means of 
 abatements in the lower portion of the scale and increas- 
 ing percentages in the higher portions. 
 
 As in the case of the Swedish law the lower incomes 
 are assessed at much less than their true amount. In 
 Sweden, however, the full amount is assessed when 4,000 
 Kr. ($1,072) is reached, while in Baden the full income 
 is not taxed until it amounts to 20,000 m. ($4,760). 
 Moreover in Sweden there is a uniform rate of one per 
 cent while in Baden the rate is uniform (as applied to the 
 abated amounts) up to 2,500 m. and again from 2,500 m. 
 to 25,000 m. It is then increased by 5 per cent of itself for 
 each one of the higher grades. For example, if the rate
 
 I IO INCOME TAXATION 
 
 for incomes from 25,000 m. to 30,000 is 2.5 per cent the 
 rate for incomes from 30,000 m. to 40,000 m. would be 
 2.5 per cent plus five per cent of 2.5 per cent (.125) or 
 2.625 per cent. The following example will perhaps 
 suffice to explain how the very long table of grades is 
 formed, the rate being 2 per cent and 2.5 per cent on 
 abated portion : 
 
 Income Portion taxed Percentage of tax 
 
 Marks Marks to true or "unabated" 
 
 income (on lower 
 amount) 
 
 900 to 1,000 
 
 200 
 
 0.44 
 
 1,000 " 1,100 
 
 250 
 
 5 
 
 1,100 " 1,200 
 
 300 
 
 54 
 
 and so on to 
 3,000 to 3,100 
 
 1,500. . 
 
 1.25 
 
 3,100 " 3,200 
 
 1,600 
 
 1.32 
 
 and so on to 
 10,000 to 10,500 
 
 9,000 
 
 2.25 
 
 10,500 " 11,000 
 
 9,500 
 
 2.37 
 
 and so on to 
 20.000 to 20.500 
 
 20.000.. 
 
 ..2.5 
 
 Incomes under 900 m. are exempt, but such exemp- 
 tion does not apply to incomes above that sum. The 
 rates are changed from year to year. In 1906 and 1907 
 they ranged from 2.4 per cent and 3 per cent (on abated 
 portion) to 4.2 per cent on incomes of 200,000 m. and 
 upwards. 
 
 In the administration of the tax, declarations are re- 
 quired from all taxpayers and failure to give the declara- 
 tion, after due notice, results in a forfeiture of the right 
 to appeal from the assessment as made by officials. Ap- 
 peals may be taken in the first instance to a Council of 
 Assessment, corresponding to the American board of 
 review; second, to the Taxation Board (Steuerdlreck- 
 tion) and, third, to the Administration Court (Ver- 
 waltungsgerichtshof} or to the Minister of Finance.
 
 MINOR GERMAN STATES III 
 
 A peculiar feature of the collection of the tax, which 
 is payable quarterly, is that it is made by a demand note, 
 or draft, which must be paid within a certain time to a 
 local bureau. In default of payment within the period 
 prescribed, execution issues against the property of the 
 taxpayer. 
 
 As to the financial results, the yield of the tax for 
 1904 was 9,308,860 m. ($2,215,508) ; the gross amount 
 of income assessed was 685,354,500 m. and the number 
 of income taxpayers 335,536 or 1Y.6 per cent of the 
 population (1,900,000). 
 
 Bavaria. While the Bavarian system is usually 
 spoken of as a partial income tax, it is the outgrowth of 
 attempts at income taxation w-hich were made at a very 
 early period. The general family tax of 1814 was super- 
 seded by a combined capital and income tax in 1850, 
 which, however, did not meet the results expected and, 
 by a revision made in 1856, the law was framed \vhich 
 has now been in force with but slight alterations for more 
 than half a century. 
 
 The law is a partial income tax in so far as it does not 
 apply to all incomes, but is designed to reach those in- 
 comes, the sources of which are not otherwise taxed. It 
 thus serves as a sort of supplemental or complementary 
 tax. It has been sometimes referred to as an "Earned 
 Income Tax Act," but this is not strictly correct, as in- 
 come from annuities which are not based upon personal 
 services, are included. 
 
 The rates are very low, beginning with one-half of 
 one per cent for incomes up to 500 m., reaching one per 
 cent at about 7,000 m., 2 per cent at 20,000 m. and 3 per 
 cent at 50,000 m. and upwards. The scale up to 14,000
 
 112 
 
 INCOME TAXATION 
 
 m. comprises 32 classes or grades of which the first ten 
 will suffice to show the low rate and slow progression : 
 
 Income 
 
 Up to 500 M. ($119) 
 
 500 M. to 750 
 
 ($178) 
 
 750 
 
 
 900 
 
 ($214) 
 
 900 
 
 
 1,050 
 
 ($250) 
 
 1,050 
 
 
 1,200 
 
 ($297) 
 
 1,200 
 
 
 1,400 
 
 ($333) 
 
 1,400 
 
 
 1,600 
 
 (i 
 
 5381) 
 
 1,600 
 
 
 1,800 
 
 
 
 5428) 
 
 1,800 
 
 
 ' 2,000 
 
 
 
 5476) 
 
 2,000 
 
 
 ' 2,200 
 
 C 
 
 5524) 
 
 Percentage on 
 
 Tax Higher Am't of 
 
 
 Income 
 
 50 Pf. (12c) 
 
 0.1 
 
 1 M. (24c) 
 
 013 
 
 2 
 
 (48c) 
 
 0.22 
 
 3 
 
 (71c) 
 
 0.28 
 
 4 
 
 (95c) 
 
 0.33 
 
 5 
 
 ($1.19) 
 
 0.35 
 
 6 
 
 ($1.43) 
 
 0.37 
 
 8 
 
 ($1.90) 
 
 0.44 
 
 10 
 
 ($2.38) 
 
 0.5 
 
 12 
 
 ($2.95) 
 
 0.55 
 
 There is no exemption at the foot of the scale though 
 certain persons, such as domestic servants, widows, 
 divorced women, orphans under eighteen years of age, 
 etc., are not subject to the tax if their incomes are less 
 than 750 marks. Incomes are assessed every four years, 
 but there are ample provisions for necessary changes in 
 the assessment, and deductions may be made for ex- 
 cessive expenditures necessitated by sickness, etc. 
 
 There is another tax, known as Kapitalrentensteucr 
 (tax on income from capital), which reaches the greater 
 portion of all "unearned" income. The rates are ma- 
 terially higher than in the case of "earned" incomes as 
 will be seen by the following table : 
 
 Income Rate 
 
 100 Marks 1.5 % 
 
 70 to 
 
 100 
 
 400 
 
 700 
 1,000 
 3,000 
 over 
 
 400 
 700 
 1,000 
 3,000 
 5,000 
 5,000 
 
 .2. 
 
 .2.5 
 
 .3. 
 
 .3.5 
 
 .3.75 
 
 .4. 
 
 The results of these two taxes for the three years 
 1900 to 1903 are shown by the following statement: 
 
 Average am't of 
 income assessed 
 
 Earned $159,236,146 
 
 Unearned 43,270,956 
 
 Average am't of 
 
 tax collected 
 
 $ 778,626 
 
 1,378,439 
 
 Average number 
 persons assessed 
 
 629,981 
 
 165,708 
 
 Total $202,507,102 
 
 $2,157,065 
 
 795,689
 
 MINOR GERMAN STATES 113 
 
 The population of Bavaria (census of 1900) was 
 6,176,057, so that the proportion of persons who paid tax 
 on earned income was 10.2 per cent and of those who paid 
 on unearned income 2.68 per cent or 12.88 per cent for 
 both. 
 
 For 1908 the amount collected from earned incomes 
 was $1,220,288, and the number of taxpayers 813,677. 
 The unearned income tax, or tax on interest of capital 
 yielded $1,739,835, which was paid by 189,441 persons. 
 The total of the two taxes was $2,960,123, which was 
 paid by 1,003,118 persons or 16.2 per cent of the popula- 
 tion. 2 
 
 Brunswick (Braunschweig). The law for this pro- 
 vince was passed in 1899 and is modeled very closely 
 after that of Prussia, though the rates are just half those 
 in force in the latter country. Perhaps the most distinc- 
 tive feature of the system is the division of the tax by 
 which three-quarters goes to the Communes and one- 
 fourth to the State. Four chief sources of income are 
 recognized, viz.: 1. Capital; 2. Real property; 3. Trade, 
 industry and mining ; and 4. Personal earnings ; but there 
 is no differentiation between them so far as the rates are 
 concerned. The amount of exemption is 900 marks. As 
 in Prussia, companies are allowed to deduct from their 
 incomes 3^ per cent of the paid up capital. 
 
 There is also a supplementary tax (Ergaensungs- 
 steuer) which is an exact copy of the Prussian law, ex- 
 cept that the rate is only one-half as much. The exemp- 
 tion, however, remains the same, being 6,000 m. The 
 
 2 . United States Consular Reports, No. 346, (July, 1909) p. 27.
 
 114 
 
 INCOME TAXATION 
 
 amount of tax provided by the Budget of 1908 was 
 3,219,000 m. ($766,255) or 59.08 per cent of the total 
 taxes. 
 
 Hesse. The law by which incomes are taxed in the 
 Grand Duchy of Hesse was passed in 1895. The table of 
 rates is a very long one and the progression is slow. The 
 first ten grades are as follows : 
 
 Income 
 
 Tax Percentage 
 
 to 0.5 
 
 ROD 
 
 7e(i 
 
 " ( 1781 
 
 g 
 
 1 
 
 0.8 
 
 7*>0 
 
 900 
 
 ' ( 214") 
 
 9 
 
 1.2 
 
 1 
 
 Qftfl 
 
 1 100 
 
 ' ( 2621 
 
 11 
 
 1.22 
 
 1 
 
 1 100 
 
 1 300 
 
 ' ( 309) 
 
 14,50 
 
 1.32 
 
 1.11 
 
 1 300 
 
 1 500 
 
 ' ( 357) 
 
 18 50 
 
 1.42 
 
 1.23 
 
 1 ^00 
 
 1 700 
 
 ' ( 405) 
 
 23 
 
 1.53 
 
 1.35 
 
 1 700 
 
 2 000 
 
 ' ( 476) 
 
 28 
 
 1.65 
 
 1.4 
 
 2 000 
 
 2 300 
 
 ' ( 547) 
 
 33 50 
 
 1.67 
 
 1.46 
 
 2.300 
 
 2.600 
 
 f 619") 
 
 39. 
 
 ..1.69 
 
 1.5 
 
 The rate reaches 2 per cent at about 3,200 m. and 3 
 per cent at 9,000 m. From 12,000 m. each additional 
 1,000 m. of income bears an additional 35 m. of tax until 
 the sum of 34,000 m. is reached. From that point each 
 additional 1,000 m. has an additional tax of 40 m. until at 
 100,000 m. a percentage of 4.91 is levied. 
 
 The tax is collected in six instalments payable every 
 second month beginning with April. 
 
 According to a French official publication there is a 
 supplemental property tax (impot sur la fortune} some- 
 what similar to the Ergaenzungssteuer which produced 
 in 1904 the sum of 2,000,000 m. The yield of the in- 
 come tax for 1904 was 8,877,600 m. ($2,110,669) upon 
 a total income of 445,767,000 m. ($106,092,486). The 
 number of income taxpayers was 312,360 or 25.8 per 
 cent of the population. The Budget for 1908 calls for 
 10,860,000 m. ($2,584,680).
 
 MINOR GERMAN STATES 115 
 
 Lippe-Detmold. The system of taxing incomes is de- 
 fined by the laws of 1894 as amended in 1903, 1905 and 
 1907. It is modeled closely after that of Prussia, 
 except that the rate is very low and is used simply as a 
 unit. The annual budgetary law specifies how many units 
 shall be raised and the rate is then increased by so much 
 in each grade. The beginning of the scale is as follows : 
 
 Income 
 300 to 400 M. 
 
 400 
 
 500 
 
 600 
 
 700 
 
 800 
 
 900 
 
 1,000 
 
 1,100 
 
 1,200 
 
 500 
 
 600 
 
 700 
 
 800 
 
 900 
 
 1,000 
 
 1,100 
 
 1,200 
 
 1,300 
 
 Tax 
 Mark. Pf. 
 12 
 
 Perc 
 0.04 t 
 
 sntage 
 
 o 0.03 
 0.04 
 0.06 
 0.07 
 0.09 
 0.11 
 0.12 
 0.13 
 0.14 
 0.15 
 
 24 
 
 0.06 
 
 36 
 
 0.07 
 
 50 
 
 0.08 
 
 .75 
 
 0.10 
 
 1 
 
 0.12 
 
 1 25 .... 
 
 0.14 
 
 1 50 
 
 0.15 
 
 1 75 
 
 0.16 
 
 2 
 
 ..0.16 
 
 The rate rises one-fourth of a mark for each 100 m. 
 of income up to 2,100 m. ; then the increase is one-half 
 of a mark for each 200 m. up to 6,900 m., from which 
 point one mark is added to the rate for every additional 
 300 m. of income. 
 
 Incomes under 300 m. are exempt for all persons and 
 incomes up to 400 m. for persons 60 years of age or 
 over. The law differs from the Prussian system in that 
 there is no supplementary tax and limited liability com- 
 panies are taxed upon their whole income. 
 
 Mecklenburg-Schwerin and Mecklenburg-Strelitz. 
 These two Grand Duchies have only partial income taxes 
 which are practically similar, and are based upon laws of 
 1903 and 1905. Separate taxes are levied on agriculture, 
 rent, trades, salaries, pensions, industries, profits of 
 scientific and artistic pursuits, wages of labor and interest 
 on investments. The tax on salaries and occupations
 
 Il6 INCOME TAXATION 
 
 (Besoldungs- und Erwerbsteuer) has a graduated scale by 
 which incomes of from 200 m. to 300 m. are taxed one 
 mark ; 300 m. to 400 m. one mark and a half and so on. 
 The tax increases one-half mark for each 100 m. until 
 900 m. of income is reached. From 900 m. to 7,500 m. 
 the amount of income is increased 100 m. for each grade, 
 while from 900 m. to 1,500 m. of income the tax ad- 
 vances by accretions of one mark; from 1,500 to 2,100 
 m. one mark and a half; from 2,100 to 3,000 m. two 
 marks; and from 3,000 to 7,500 m. two and one-half 
 marks for each grade. From 7,500 m. to 10,000 m. the 
 rate of tax is 2 per cent; from 10,000 m. to 20,000 m. 
 2% per cent and above 20,000 m. it is fixed at 2^2 per 
 cent. The budget estimates for 1908 showed the yield 
 of the tax to be 848,100 m. ($201,848) for Mecklenburg- 
 Schwerin and 155,700 m. ($37,057) for Mecklenburg- 
 Strelitz. 
 
 Oldenburg, is a recent accession to the income-taxing 
 states, as it operates under laws passed in 1906 and 1908. 
 The normal scale of rates proceeds from a tax of one 
 mark or one- fourth of one per cent for the lowest grade 
 of income (400 m. to 450 m.) to 5 per cent on incomes 
 of 37,000 m. or more. The steps of the progression as 
 to incomes are 50 m. in the lower grades which increase 
 to 500 m. in the higher grades. The estimated yield of 
 the tax for the year 1908 was 2,630,000 m. ($625,940) 
 which was 45 per cent of all taxes raised. 
 
 Reuss (Older Line) is classed among the states which 
 have only a partial income tax, as income from real estate 
 within the principality is not taxed. While the law of 
 1893 describes it as a "general" (allgemeine) income tax, 
 its application is limited to certain sources which are
 
 MINOR GERMAN STATES Iiy 
 
 enumerated in the law. The table of rates furnishes 
 simply a progressive scale of units, which can be uni- 
 formly multiplied by whatever sum is necessary to pro- 
 duce a given amount. For example, in 1908, the actual 
 tax consisted of nine times the amount given in the table 
 for each grade. The scale extends from 3 pfennige 
 (three- fourths of one cent) for incomes of from 15 to 
 30 mark ($3.57 to $7.14), which would be equivalent to 
 one-fifth of one per cent, to 44 m. for incomes of from 
 11,250 m. to 12,000 m., or about 0.3 per cent. From this 
 point upward 5 m. is added to the tax for each additional 
 1,000 m. of income. This operates to increase the rate 
 so slowly that it would scarcely reach one-half of one 
 per cent at 1,000,000 marks. 
 
 The amount of the tax in 1908 was 584,400 m. 
 ($138,087) which constituted 81 per cent of all the taxes 
 raised. It is somewhat remarkable that this Lilliputian 
 state with a population of only 70,000 and an area less 
 than two-thirds that of Chicago, raises a larger annual 
 tax upon income than has ever been attained by any of 
 the great states of the American Union, in time of peace, 
 from state income taxes ! 
 
 Reuss (Younger Line) raises an income tax under a 
 law of 1898 in substantially the same manner as the pre- 
 ceding state, except that all income is assessed, and the 
 rates are slightly higher. The taxes on the three lowest 
 grades are not collected by the state, but only locally. The 
 scale for the state tax, therefore, begins at the fourth 
 grade (which is from 550 m. to 650 m.), at 30 pfennige 
 and is increased in the higher grades (over 102,000 m.) 
 one-third of one per cent for each 3,000 m. of income. 
 This state is notable for raising a larger proportion of its
 
 Il8 INCOME TAXATION 
 
 taxes by the income tax than any other German state, or, 
 so far as I am aware, any other country the proportion 
 contributed by the income tax being 84.11 per cent. 
 
 Saxony. The system of income taxation in force in 
 Saxony is of special interest and importance; first, be- 
 cause it was one of the earliest adopted in Germany and 
 therefore served as a model for many other German pro- 
 vinces; and second, because the amounts collected by it 
 are relatively very large. For example, Saxony has a 
 population only two-thirds as large as that of Bavaria, 
 but it collects more than ten times as much income tax. 
 The amount collected per capita in Saxony is nearly twice 
 as great as in Prussia and nearly double the average for 
 all the other German provinces. 
 
 The Saxon income tax law may be traced back to the 
 business and personal tax (Gewerbe- und Personalsteuer} 
 of 1834, which was an attempt to levy a graduated tax 
 upon incomes. Although the law was improved some- 
 what by the changes made in it in 1845 and 1850, it was 
 found to be poorly adapted to a country which was mak- 
 ing such rapid progress financially. A revisory com- 
 mission was appointed in 1868 and the result of several 
 years of investigation and legislative debate was the adop- 
 tion of the general income tax law of 1874, which went 
 into effect in 1877. The first levy of the tax was con- 
 sidered experimental, but was so successful that a new 
 law was passed in 1878, which, while it has been amended 
 frequently in minor particulars, is, in its main outlines, 
 the same as the law of 1874. 
 
 The table of rates is very long, as there are 120 classes 
 or grades before 102,000 m. of income are reached. The 
 rates are not percentual, but are fixed amounts and are 
 called the normal tax. If in preparing the budget it
 
 MINOR GERMAN STATES 
 
 should appear that these rates would produce more tax 
 than is needed they are uniformly reduced by one-tenth 
 or more. If, on the other hand, they will not raise a suffi- 
 cient sum they are increased by Zuschlaege, or additional 
 rates, which are quite independent of the regular supple- 
 mentary Ergaenzungssteuer. 
 
 The general effect of the normal rates may be sum- 
 marized as follows : 
 
 Incomes under 400 m. are exempt. 
 " of 400 to 
 
 500 m 
 1,000 
 2,800 
 5,400 
 10,000 
 32,000 
 70,000 
 100,000 
 
 . ($ 119) pa 
 ($ 238) 
 ($ 666) 
 ($ 1,285) 
 ($ 2,380) 
 ($ 7,616) 
 ($16,660) 
 ' ($23,800) ai 
 
 y 1 rr 
 10 
 56 
 180 
 354 
 1,280 
 3,150 
 id upwar 
 
 . say 
 ds pa) 
 
 Among the deductions allowed are 50 m. for each 
 child from 7 to 14 years old providing the parent's in- 
 come does not exceed 3,100 m. ($738) and in case there 
 are three or more dependents in the family the deduction 
 must amount to at least one grade. For taxpayers whose 
 total income does not exceed 5,800 m. ($1,380) an abate- 
 ment, not to exceed three grades, may be made in the 
 following cases : 
 
 a) When the support of children or indigent rela- 
 tives involves a burden of such a nature as to seriously 
 affect the standard of living. 
 
 b) When long continued illness or accidents operate 
 to decrease wage-earning ability. 
 
 The basis of assessment of income is : 
 
 a) For land and house property 
 
 The rent of the preceding year, less deductions, ex- 
 cept income from agriculture which is on an average of 
 three years ;
 
 I2O INCOME TAXATION 
 
 b) For invested capital 
 
 Rate of interest at time of making return subject to 
 certain special provisions ; 
 
 c) For wages, salaries, fees, etc. 
 Amount for current year ; 
 
 d) For trade, industry and gainful occupation 
 Average of three years. 
 
 It may be mentioned, in passing, that most of the 
 other German states follow the same plan. 
 
 There is a supplemental tax (Ergaenzungssteuer} at 
 the same rate and in substantially the same form as that 
 of Prussia, except that incomes under 10,000 m. are ex- 
 empt as is all property subject to the land tax. For 
 investments yielding 4 per cent, this supplementary tax 
 would be equivalent to a tax of 1^4 P er cen t on the 
 annual income. 
 
 As to financial results, the amount collected in 1902 
 was $8,677,756, which constituted about three-fourths of 
 all the direct taxes for that year. The amount of income 
 assessed was $544,247,232. The whole number of assess- 
 ments was 1,785,471, or 42.3 per cent of the whole popu- 
 lation and 4,719 corporate bodies. Of this number, how- 
 ever, 186,590 persons were exempted on the ground that 
 their incomes did not exceed 400 m. and 2,180 corpora- 
 tions as not being within the law, so that the number of 
 actual taxpayers was only 26 per cent of the total popula- 
 tion (4,202,216). 3 
 
 3 . The report of the tax office of the city of Chemnitz in Saxony 
 for the year 1908, is very complete and exhibits some interesting re- 
 sults. Out of a population of 275,000 people there were 111,381 who 
 were assessed for incomes of more than 400 marks. It thus appears 
 that the income tax was paid by more than 40 per cent of the popula- 
 tion, a larger proportion than in any other city in the world, so far
 
 MINOR GERMAN STATES 
 
 121 
 
 The estimated levy for 1908 was 51,575,000 m. 
 ($12,274,850), which is the largest amount of income 
 tax raised by any state in Germany, except Prussia. 
 
 Saxe-Altenburg. The taxation of incomes is based 
 upon laws of 1896, 1899 and 1901. The scale of rates 
 rises from about one-third of one per cent on incomes of 
 60 m. (15) up to 4 per cent on incomes of over 18,000 m. 
 ($4,284) from which point it is proportional. The ex- 
 emption is only 60 m. for "juridical persons" (corpora- 
 tions), foreign artisans and those whose incomes arise 
 from landed property or state salaries or pensions. For 
 all other persons the exemption includes the first two 
 grades, or up to 450 marks. 
 
 A peculiarity of the taxation of limited liability com- 
 panies is that they are taxed on only one-half their pro- 
 fits. 
 
 as we are able to learn. A possible explanation is that, as Chemnitz 
 is a great manufacturing city, a very large proportion of women and 
 children receive incomes of more than 400 m. 
 
 The classification of the incomes shows that there were 
 
 36,461 persons who had incomes between 400 m. and 800 m. 
 
 25,941 
 
 27,068 
 
 11,625 
 
 3,615 
 
 2,693 
 
 1,238 
 
 671 
 
 600 
 
 848 
 
 247 
 
 112 
 
 262 
 
 From this table it will be seen that over one-half of the popula- 
 tion, or 62,402 persons, had incomes of less than 1,100 m. ($261.20) 
 and 90 per cent had incomes of less than 2,500 m. ($595). 
 
 The income tax yielded in 1908, $1,025,442, which was an increase 
 of over $100,000 over the preceding year and amounted to an average 
 of nearly ten dollars for each taxpayer. See Consular Report in 
 Congressional Record, Vol. 45, p. 1116. 
 
 800 
 
 
 1,100 
 
 1,100 
 
 
 1,600 
 
 1,600 
 
 
 2,500 
 
 2,500 
 
 
 3,400 
 
 3,400 
 
 
 4,800 
 
 4,800 
 
 
 6,300 
 
 6,300 
 
 
 7,800 
 
 7,800 
 
 
 10,000 
 
 10,000 
 
 
 20,000 
 
 20,000 
 
 
 30,000 
 
 30,000 
 
 
 40,000 
 
 r 
 
 
 40,000
 
 122 INCOME TAXATION 
 
 There are supplementary taxes which take the form 
 of a trade tax and a Kapitalrentensteuer, or investments 
 tax. These taxes are levied upon : 
 
 1. Persons deriving an income of not less than 700 
 m. from interest on capital, and having a total income of 
 more than 1,800 marks. 
 
 2. All companies which are liable to the income tax. 
 
 3. All persons with incomes exceeding 2,100 m. de- 
 rived from trade or investments. 
 
 The trade tax is levied on 4 per cent of the capital in- 
 vested in business without regard to the profits; the in- 
 vestments tax is levied on income without regard to 
 capital. The table of rates for these taxes exhibits a 
 curious double progression which is accomplished in the 
 following manner : 
 
 Income from Tax when 
 Trade or Invest- income below 
 ment 6,000 M. 
 Marks Marks 
 
 Tax on 
 income over 
 6,000 M. and 
 under 18,000 M. 
 Marks 
 
 Tax on 
 income 
 over 18,000 M. 
 Marks 
 
 200 to 300 
 
 * * 
 
 2 
 
 * 
 
 3 
 
 * 
 
 4 
 
 * 
 
 1,000 " 1,200 
 * * 
 
 10 
 
 * 
 
 15 
 
 * 
 
 20 
 
 * 
 
 2,000 " 2,200 
 * * 
 
 20 
 
 * 
 
 30 
 
 * 
 
 40 
 
 * 
 
 3,000 " 3,300 
 
 * * 
 
 30 
 
 if 
 
 45 
 
 * 
 
 60 
 
 * 
 
 7,000 " 8,000 
 
 * * 
 
 70 
 
 * 
 
 105 
 
 * 
 
 140 
 
 * 
 
 Each additional 1,000 
 
 10 
 
 15 
 
 20 
 
 It will be noticed that the rates in the first column are 
 two-thirds of those in the second and those in the sec- 
 ond three-fourths of those in the third and it is evident 
 that the taxation of each grade must stand by itself as 
 independent of those below it. 
 
 The levy made in 1907 for the period 1908-1910, pro- 
 vides for dividing the tax of each year into eleven month- 
 ly payments.
 
 MINOR GERMAN STATES 123 
 
 Saxe-Cobnrg. Under the old law of 1874 and the 
 later one of 1900, this portion of the Duchy of Saxe- 
 Coburg-Gotha, has a combination of the class tax and 
 the income tax. There is a progression of 18 grades with 
 basal rates rising from one-tenth of one mark to five 
 marks. These rates cannot be increased more than 16 
 fold. Persons having less than 2,400 m. of income are 
 assessed by the class tax, while those having more are 
 subject to the income tax. 
 
 Saxe-Gotha is operating under a general income tax 
 law passed in 1902 and revised in 1908. Incomes under 
 300 m. are exempt and the scale of rates rises from 0.02 
 per cent for 300 m. to 3.7 per cent for 10,000 m. and 
 reaches nearly 5 per cent at 100,000 m. There is the 
 usual supplementary tax, on the Prussian model, with the 
 difference that it does not apply to incomes under 5,000 
 marks. 
 
 Saxe-Meinlngen. The progressive income tax m force 
 in this Duchy was adopted in 1890. It differs from most 
 of the other states in being percentual. There is an exemp- 
 tion of 600 m. from which point the rates rise from 0.8 
 per cent to 4 per cent which is the rate for 33,000 m. or 
 more. A special feature of the law is the provision re- 
 quiring persons who have made no declarations and have 
 been assessed by officials for less than their true income, 
 to notify the officials of that fact. A similar law is in 
 force in the three free cities of Lubeck, Hamburg and 
 Bremen. There is no supplemental tax. 
 
 S axe-Weimar. The income tax law contains no 
 tariff, but simply defines taxable income and leaves the 
 tariff to be fixed by biennial laws. According to the law 
 for 1908-1910, the rate begins with 3.60 m. for incomes
 
 124 INCOME TAXATION 
 
 of 500 to 600 m. (O.T2% to 0.6%) and reaches 4 per 
 cent for incomes of 30,000 m. and over. There is no 
 supplemental tax and under the new law the amount of 
 exemptions is 500 marks. 
 
 Schanmberg-Lippc. In this principality, by the laws 
 of 1901-4-5 (which are based on the Prussian law) the 
 rates begin with 4.20 m. for incomes of 450 m. to 600 m. 
 (0.93% to 0.7%) and reach 4 per cent at 100,000 m. 
 For sums above 100,000 m. the rate is 4 per cent on the 
 lower amount in each grade and, of course, somewhat less 
 for the higher amount. The exemption is 450 m. and 
 there is no supplemental tax. 
 
 Schwarzbnrg-Rudolstadt. Under the law of 1902, as 
 amended in 1908, incomes pay a monthly rate of 5 pf. 
 (1^4 cent) if under 350 m. ; 10 pf. for 350 m. to 400 m. ; 
 54 m. for 1,800 to 20,000 m., and 0.3 per cent for larger 
 sums. It will be seen that the total amount paid in a year 
 cannot exceed 4 per cent. There is no exemption and no 
 supplemental tax. 
 
 Schivarzburg-Sonderhausen. The law of 1894 has 
 been repeatedly changed, the last amendment being in 
 1904. The rates are very low beginning with one-third 
 of one per cent for incomes of 300 m. to 400 m. and be- 
 coming proportional at 3 per cent for incomes exceeding 
 4,800 m. The exemption is 300 m. and there is no sup- 
 plemental tax. 
 
 Waldeck. The income tax feature of the present law 
 dates from 1893. The lower classes of incomes are sub- 
 ject to a class tax which is laid with reference to the oc-
 
 MINOR GERMAN STATES 125 
 
 cupation of the taxpayer, while the larger incomes (all 
 over 900 m.) are subject to the general income tax. The 
 rates represent the amounts payable monthly in the first 
 three classes and range from 10 pf. to 5.50 m. Incomes 
 of 3,000 m. and over, which constitute the fourth class, 
 are subject to a super-tax of 3 per cent, annually on all 
 excess above 3,000 marks. 
 
 Wiierttemberg is third in importance among the Ger- 
 man states in the amount of income tax raised, unless the 
 free city of Hamburg is counted as a state, in which case 
 it would be fourth. In order to understand the relation 
 of the income tax to the general taxing system it would 
 be necessary to have a clear idea of the somewhat com- 
 plicated features of the real estate tax, house tax, in- 
 dustrial tax and tax upon incomes from capital, wages, 
 and occupations out of which it has grown. It was only 
 after several years of agitation and debate that the two 
 chambers of the Kingdom finally agreed upon the present 
 income tax law which was passed August 8, 1903, and 
 went into effect April 1, 1905. 
 
 The table of rates comprises 96 grades, beginning 
 with a rate of 2 m. (0.4% to 0.3%) on incomes of 500 
 m. to 650 m. and increasing slowly to 5 per cent for in- 
 comes of 200,000 m. and over. For the first thirty grades 
 the incomes increase by steps of 150 m. while the 
 amounts of tax are successively 2-3-4-5-7-9-11-13-16-18- 
 21-25-28-32-36-40-44-49-53-59-64-69-75-81-87-93 - 100- 
 107-114 and 121 m., which last amount is the rate for the 
 grade of income comprising 4,850 m. to 5,000 m. In the 
 next ten steps the income increases at the rate of 200 m.
 
 126 INCOME TAXATION 
 
 a step, and the amounts of tax are respectively 128-135- 
 143-151-159-168-176-185-194 and 204 m. The last 
 amount constitutes a 3 per cent rate on the lower amount 
 in the grade of 6,800 m. to 7,000 m. The 4 per cent rate 
 is reached at 30,000 m. ; 4^ per cent at 100,000 m. ; 4^4 
 per cent at 150,000 and 5 per cent at 200,000 m. There 
 is a general exemption of incomes under 500 m. ($119) 
 which does not apply to non-residents and cannot be con- 
 sidered as a deduction or abatement for incomes of a 
 larger amount. There are also a large number of special 
 classes of incomes exempted by reason of their military, 
 educational, religious, benevolent, charitable or public 
 uses. 4 
 
 Special abatements, which are within the discretion of 
 the Assessment Commission (Schaetzungskommission), 
 may be allowed for : 
 
 a) Education and support of children. 
 
 b) Support of indigent relatives. 
 
 c) Active service in the army and navy. 
 
 d) Protracted illness. 
 
 e) Severe accidents or financial reverses. 
 
 But such abatements are allowable only to persons 
 whose annual income is less than 5,000 m. ($1,190) and 
 must not amount to a reduction of more than three 
 grades. There is no provision for collection at the source 
 nor for differentiation between earned and unearned in- 
 come, except such as results from the "Kapitalsteuer- 
 gesets," sometimes called the "unearned income tax act," 
 
 *. For example, a taxpayer having an income of less than 2,000 
 m. is entitled to an abatement of one grade for one or two children 
 under fifteen years of age and of two grades for three or more. If 
 his income is between 2,000 and 3,200 m. he is allowed one grade 
 for three or more children.
 
 MINOR GERMAN STATES 127 
 
 which applies specifically to interest on capital, dividends 
 of companies, annuities, etc., and is additional to the in- 
 come tax, the industry tax and also to the supplementary 
 tax, in case the same is voted by the legislature. It thus 
 appears that a manufacturer or trader may be called upon 
 to pay : 
 
 1.) The general income tax (Die allgemeine Ein- 
 kommensteuer) as explained above. 
 
 2.) The tax on capital (Kapitalsteuer) of 2 per cent 
 of profits from investments. 
 
 3.) The land tax (Grundsteuer) , of 2 per cent of 
 ground rental value of his premises. 
 
 4.) The house tax (Gebaeudesteucr), of 3 per cent 
 of market value of the property. 
 
 5.) The trade or industrial tax (Gewerbestcuer), 
 fixed at 2 per cent of the actual yield of the capital in- 
 vested (but not income from personal services). 
 
 6.) The ordinary local or communal taxes. 
 
 As a fiscal measure the income tax in Wuerttemberg 
 is considered a success. In the first year of its operation 
 it yielded two-thirds of all the direct taxes. The budget 
 of 1908 called for 18,000,100 m. ($4,284,024) and, for 
 the levy of 1909-10, it is proposed to raise the rates about 
 12 per cent. 
 
 Bremen, Hamburg, Lubeck. While the systems of 
 income taxation in these free Hanseatic cities belong 
 rather in the domain of municipal than of state taxation, 
 they are to some extent a combination of the two, and it 
 would require a very careful analysis to draw the line 
 clearly between them. 
 
 The income tax laws of Bremen were passed in 1902 
 and 1905. The rates are fixed yearly at a certain multiple
 
 128 INCOME TAXATION 
 
 of the unit or basal rates, and range from 1 m. ( 
 to O.lfo) for incomes of 900 m. to 1,000 m., to 1.20 per 
 cent for incomes of over 200,000 m. These rates are re- 
 duced 50 per cent for the suburban districts. The tax in 
 1908 amounted to 7 units, or sevenfold the basal rates. 
 
 The Hamburg income tax law dates from 1903 and 
 is notable in that the amount of tax collected by it per 
 capita is much higher than in any of the other German 
 states, being, in 1908, 43.98 m. ($10.50). It should be 
 remembered, however, that in this, as in the other free 
 cities, the amount includes local and state taxes. There 
 is a unital rate which begins with one mark or one-ninth 
 of one per cent for incomes of 900 m. to 1,000 m., reaches 
 one per cent at 30,000 m. and 1.20 per cent at 200,000 m. 
 The usual tax is 6 times these rates. The budget for 1908 
 provided for a levy of 38,481,000 m. ($9,158,478). It 
 was estimated in 1 900 that about one- fourth of the popu- 
 lation had incomes of less than 900 m. and that the aver- 
 age income of such persons was 500 marks. Lubeck 
 has had an income tax since 1889. The rates are 
 progressive and percentual rising from two-thirds of 
 one- per cent for 600 m. to 8 per cent for 40,000 
 m. and over. In this city, as also in Hamburg, there is 
 no penalty for failing to make a declaration of income. 
 
 SUMMARY. 
 
 The following table will serve to show the relative 
 importance of the income taxes mentioned in this 
 chapter :
 
 MINOR GERMAN STATES 
 
 129 
 
 Kingdom, 
 Duchy, etc. 
 
 Alsace-Lorraine 
 
 Income 
 Tax 1908 
 Marks 
 1,900,000 
 2,415,000 
 15,600,500 
 4,930,000 
 3,219,600 
 10,860,000 
 720,000 
 848,100 
 155,700 
 2,630,000 
 584,400 
 1,100,000 
 51,575,000 
 1,278,000 
 1,645,000 
 1,330,000 
 3,104,000 
 235,000! 
 461,500 
 504,900 
 252,600 
 18,000,100 
 10,677,000 
 38,481,000 
 2,910,000 
 
 Percent 
 of total 
 taxi 
 5.42 
 63.93 
 35.90 
 5.30 
 59.08 
 54.37 
 60.14 
 19.65 
 27.10 
 45. 
 80.96 
 84.11 
 73.31 
 61.78 
 71.30 
 65.44 
 80.96 
 72.62 
 62.52 
 70.59 
 61.62 
 43.56 
 59.66 
 57.56 
 60.96 
 
 Income 
 per c; 
 Marks E 
 1.05 
 7.36 
 7.76 
 0.76 
 6.63 
 8.98 
 4.95 
 1.36 
 1.50 
 5.99 
 7.77 
 7.61 
 11.44 
 6.19 
 6.79 
 4.95 
 8. 
 5.22 
 4.76 
 5.93 
 4.27 
 7.82 
 40.53 
 43.98 
 27.49 
 
 Tax 
 ipita 
 lol. Cts. 
 .25 
 1.74 
 1.84 
 .18 
 1.58 
 2.14 
 1.18 
 .42 
 .36 
 1.42 
 1.85 
 1.81 
 2.72 
 1.47 
 1.62 
 1.18 
 1.90 
 1.25 
 1.13 
 1.41 
 1.02 
 1.86 
 9.66 
 10.47 
 6.5-1 
 
 Anhalt 
 
 Baden 
 
 Bavaria 
 
 Brunswick 
 
 
 Lippe 
 
 Mecklenburg-Schwerin 
 
 Mecklenburg-Strelitz 
 
 Oldenburg 
 
 Reuss Older Line 
 
 Reuss Younger Line 
 
 Saxony 
 
 Saxe-Altenburg 
 
 Saxe-Coburg Gotha 
 
 Saxe-Meiningen 
 
 
 Schaumburg- Lippe 
 
 Schwartzburg-Rudolstadt ... 
 Schwartzburg-Sondershausen . 
 W^aldeck 
 
 W^uerttemberg 
 
 
 Hamburg 
 
 Lubeck . 
 
 It should be borne in mind that the amounts of in- 
 come tax given in the foregoing table are only approxi- 
 mate and subject to deductions for cost of collection. 
 
 The average per capita tax for the twenty-five states 
 is $2.28, which is more than double the average amount 
 in countries having income taxes generally. Of the 
 twenty-five states mentioned, there are five which have 
 only partial income taxes. These are Bavaria, Alsace- 
 Lorraine, the Mecklenburg Grand-duchies and Reuss, 
 Older Line. 5 
 
 5 . The principal sources of information which have been relied 
 on in preparing the foregoing chapter are Handwoerterbuch der 
 Staatswissenschaften, dritte Auflage, Band III (1909) ; Regime Fiscal 
 des Valeurs Mobilieres en Europe, (1901) ; Reports from his Maj- 
 esty's Representatives Abroad respecting Graduated Income Taxes 
 in Foreign States, (1905) ; Seligman, Progressive Taxation in Theory 
 and Practice, 2d Ed.
 
 CHAPTER VIII. 
 
 GREECE, HAWAII, HOLLAND, HUNGARY, 
 INDIA, ITALY. 
 
 GREECE. 
 
 It has seemed worth while to make mention of this 
 country not because it has had any experiences with in- 
 come taxes in modern times, 1 but because the principles 
 of income taxation are supposed to have originated with 
 the Athenians. The statement is often made that the in- 
 come tax was first used by the Greeks in the time of 
 Solon (596 B. C). This assertion is apparently based 
 upon a much quoted passage in Montesquieu's Spirit of 
 the Laws ; 2 but the tax there referred to was rather in the 
 nature of a "produce tax," such as was levied in early 
 
 1 . The only levies which resemble income taxes are the five per 
 cent tax on the net profits of joint stock companies, the patent cs or 
 business licenses and the special graded salary tax on the employees 
 of various corporations, which last is as follows : 
 
 On salaries of 500 to 3,000 drachmas the tax is 2% 
 
 " " 3,001 " 5,000 " " " " 3% 
 
 " 5,001 " 7,000 " " " " 4% 
 
 " 7,001 " 12,000 " " " 5% 
 
 above 12,000 " " " 6% 
 
 (The Grecian drachma is equivalent to the French franc, or 
 19.3 cents.) 
 
 2 . "On avoit divise a Athenes les citoyens en quatre classes. 
 Ceux qui retiroient de leurs biens cinq cents mesures de fruits liquids 
 ou sees payoietit au public un talent; ceux qui en retiroient trois
 
 GREECE 
 
 Colonial days in this country. So far from its being the 
 first income tax there is reason to believe that there were 
 levied, in Egypt, a thousand years earlier, certain taxes 
 which corresponded more closely to the modern income 
 tax than did the law of Solon's time. Among the duties 
 of the Grand Vizier of Egypt in 1580 B. C. the collection 
 of income taxes was mentioned. 3 Certain public officials, 
 as for example the judges, were required to pay a per- 
 centage of their incomes to the state.* According to 
 Aristotle a general income tax upon all employments was 
 levied by King Tachus in Egypt at the instance of 
 Chabrias. 5 
 
 It cannot be denied, however, that the Greeks under- 
 stood the principles of the progressive income tax and 
 that laws were formulated by them with a view to the 
 collection of such taxes. As early as 380 B. C. the people 
 were divided into four classes. The rate of taxation was 
 one per cent on the lowest class, composed of all those 
 with an income below 25 minas (about $427) ; five per 
 cent on the second class, with incomes from 25 to 50 
 minas ; ten per cent on the third class, with incomes from 
 50 to 100 minas ; and twenty per cent on the fourth class, 
 
 cents mesures devoient un demi-talent ; ceux qui avoient deux cents 
 mesures paypient dix mines ou le sixieme partie d'un talent; ceux 
 de la quatrieme classe ne donnoient rien." At Athens the citizens 
 were divided into four classes. Those who realized from their 
 estates 500 measures of dry or liquid fruit paid a tax of one talent; 
 those who realized 300 measures paid half a talent; those who had 
 200 measures paid 10 minas or one sixth of a talent, and those of the 
 fourth class paid nothing. Montesquieu, De 1'Esprit des Lois, Book 
 XIII, Ch. VII. See also Boeckh, Public Economy of the Athenians 
 Book IV, Ch. 5. pp. 639-665. (Am. Ed.) 
 
 3 . Breasted. Ancient Records, Vol. 2, par. 706. 
 
 4 . Breasted. Ancient Records, Vol. 2, par. 716, and Vol. 5, 
 page 31, Note. 
 
 5 . Bancroft. Ancient Greece, p. 143.
 
 132 INCOME TAXATION 
 
 with incomes above 100 minas. 6 But even at that early 
 day the tax was looked upon as a sort of emergency, or 
 war tax, and there is some doubt whether it was actually 
 put into operation. 7 
 
 HAWAII. 
 
 The system of income taxation which has been in 
 force in Hawaii since 1901, is of special interest, not 
 only because the territory is within the jurisdiction of 
 the United States, but also for the reason that the 
 law is modeled closely after the United States Law 
 of 1894, which was held to be unconstitutional. 
 
 The Hawaiian law provides for a tax of two per 
 cent upon all incomes, including those of corpora- 
 tions, and would be a strictly proportional tax were it 
 not for the exemption of $1,500, 8 which applies to all 
 incomes regardless of the amount. The progressive 
 effect which results from the exemption is shown by 
 the fact that a taxpayer with a total income of $3,000 
 would pay one per cent of his whole income, while 
 the recipient of $100,000 would pay a tax of 1.97 per 
 cent. Corporations are taxed on the net profit or in- 
 come above actual operating and business expenses. 
 As compared with the corporation tax law of the 
 United States, the following provision for computing 
 the net income of corporations will be of interest : 
 
 6 . Seligman. Progressive Taxation, etc., p. 12, citing Rodbertus 
 Untersuchungen zur Geschichte der roemischen Tributsteuer seit 
 Augustus in Hildebrand's Jahrbuecher fuer National-Oekonomie und 
 Statistik. Band VIII, 1867. pp. 453, et seq. 
 
 7 . Diet, de 1'liconomie Politique, Revenu. 
 
 8 . The exemption was $1,000 until changed by Act 64, Laws of 
 1909, to the above mentioned sum.
 
 HAWAII 133 
 
 The net profits or income of all corporations shall in- 
 clude the amount paid or payable to, or distributed or dis- 
 tributable, among 1 , the shareholders from any fund, or used 
 for construction, enlargement of plant, or any other ex- 
 penditure or investment, paid from the net profits, made or 
 acquired by said corporation, during the taxation period 
 next preceding, whether that period be the first taxation 
 period or any succeeding period. 9 
 
 Persons who receive dividends upon stock in cor- 
 porations which have paid the income tax, are not 
 required to include such dividends in their returns of 
 income. All persons and corporations are required 
 to make returns and if they fail, they may be sum- 
 moned by the district assessor to appear before him 
 and produce the books of accounts relating to their 
 business. 10 Appeals may be taken in the same man- 
 ner as from property tax assessments ; but notice of 
 appeal must be given, stating the grounds of the ap- 
 peal, and making a deposit of the costs. 
 
 Act 33, Laws of 1909, provides that the amounts col- 
 lected by the income tax shall be used as follows : 
 
 Three fourths of said fund is hereby appropriated for 
 and shall be used for the encouragement of immigration to 
 the Territory of Hawaii, in aid and development of the 
 agricultural resources and conditions, * * * and one 
 fourth of said fund is hereby appropriated for and shall be 
 used for the development, conservation, improvement and 
 utilization of the natural resources of the Territory. 
 
 A peculiar feature of the Hawaiian taxing system is 
 the provision for County income tax which is found in 
 Chapter 26 of Act 31, Laws of 1903. 
 
 9 . Section 1281 Revised Laws of Hawaii, as amended by Sec- 
 tion 4, Act 87, Laws of the Territory of Hawaii, Session of 1905, 
 p. 195. 
 
 10 . Revised Laws of Hawaii, Section 1278, et scq.
 
 134 INCOME TAXATION 
 
 The tax is levied for "annual County revenue pur- 
 poses" at the rate of 2% on all "gains, profits and income 
 over eighteen hundred dollars" and full provision is 
 made for the assessment and levy of the tax by County 
 officials. All persons having incomes of more than $600 
 a year and all corporations, are required to make returns 
 of their incomes. The Board of Supervisors is au- 
 thorized to add two hundred per cent to the just valuation 
 of the income of any taxpayer who has made a false or 
 fraudulent return. 
 
 The total revenue of the Territory of Hawaii for the 
 fiscal year ending June 30, 1908, was $2,669,748.32, and 
 of this sum $1,880,847.83, or 70%, was raised by taxa- 
 tion. The place which the income tax fills in the budget 
 may be seen by the following summary of the principal 
 items of State taxation for the year 1908 :" 
 
 Real property tax $640,051 
 
 Personal 
 
 Income 
 
 School 
 
 Road 
 
 Poll 
 
 Carriage 
 
 Inheritance 
 
 Insurance 
 
 635,265 
 266,241 
 97,846 
 97,842 
 49,144 
 28,741 
 21,430 
 16,116 
 
 Penalties 14,939 
 
 Sundry minor taxes 13,232 
 
 It thus appears that the income tax yielded nearly 10 
 per cent of the total revenue and 14.15 per cent of the 
 amount raised by taxation and tax penalties. Of the 
 penalties mentioned above, the amount collected in con- 
 nection with the income tax was $2,758. The cost of 
 collecting all taxes, including income tax, was 3.64 per 
 cent. 
 
 11 . Report of the Governor of Hawaii, Sept. 19, 1908, in Re- 
 ports of the Department of the Interior of the United States, Vol. 
 II, pp. 342-344.
 
 HOLLAND 
 
 135 
 
 The yield of the income tax has been as follows : 
 
 1902 $286,630.20 
 
 1903 202,526.44 
 
 1904 170,511.71 
 
 1905 155,978.87 
 
 1906 391,366.65 
 
 1907 187,687.91 
 
 1908 266,241.74 
 
 The number of income taxpayers is not disclosed by 
 the statistics, but as more than half the population 
 (95,000 out of 170,000) are orientals, it is probable that 
 the number is relatively small. 
 
 In 1908, a legislative committee was appointed to in- 
 vestigate the income tax law with a view to its revision, 
 but they did not recommend any radical changes. 
 
 HOLLAND. 
 
 The system of income taxation which is in force in 
 the Netherlands is deserving of special study for the rea- 
 son that it is based largely upon scientific theories and in- 
 vestigations. It has often happened in other countries, 
 and particularly in the United States, that income tax 
 laws have been formulated by men who had little knowl- 
 edge of the subject; but the Dutch law was drawn by a 
 man who presented the unusual combination of a success- 
 ful man of affairs, a noted financier and a political 
 economist of international reputation. In 1891 and 1892, 
 the late Dr. N. G. Pierson, 12 while Minister of Finance 
 
 12 . Nicholas Gerard Pierson was born in Holland in 1839. After 
 a trip to the United States he published, in 1859, a book on the 
 American Banking System. He was made a director in the Bank 
 of the Netherlands in 1868, and about that time he published a large 
 book on Dutch Colonial Policy. In 1877 he was called to the chair 
 of economics in the University of Amsterdam. This position he 
 held until 1885, when he was made President of the Bank of the 
 Netherlands. He became Minister of Finance in 1891 and Prime
 
 136 INCOME TAXATION 
 
 for the Netherlands, prepared two laws which constitute 
 the present system. The first was the Vernioegensbelast- 
 ing, or property tax, which was passed September 27, 
 1892, and the second the Belasting op bedrijfs en andere 
 inkomsten (tax on incomes from business, etc.), or busi- 
 ness tax, which went into effect October 2, 1893. 
 
 The objects sought to be obtained by these laws were : 
 
 1. To tax incomes derived from industries and 
 salaries, that is from personal exertion, at a much lower 
 rate than income received from investments say, in the 
 ratio of about 3 to 5. 
 
 2. To adopt a system of graduation which should be 
 effected in two ways : 
 
 a) By deducting from every income a considerable 
 exemption which has the effect to produce a strong pro- 
 gression in the lower grades and a weak one in the higher, 
 
 b) By strengthening the progression where it be- 
 comes too slight, by increased rates for higher incomes. 
 
 It is unfortunate that the plan devised is quite com- 
 plicated and to compass any adequate explanation of it 
 within a brief space is a difficult task. Under these cir- 
 cumstances we cannot perhaps do better than to quote an 
 explanation which Dr. Pierson himself has given. 13 
 
 Minister in 1897, which latter position he held for four years. He 
 was a voluminous writer on political economy and banking, his most 
 important work being his Leerboek der Stathuishoudkunde, the first 
 volume of which has been translated into English under the title 
 "Principles of Economics." See The Economic Bulletin, Vol. Ill, 
 No. 1 (March, 1910) p. 10. 
 
 13 . The Income Tax in Holland. Economic Journal, Vol. 17, 
 Sept. 1907, p. 417. See also Cohen-Stuart, A. J. Progressive Taxa- 
 tion in Holland in Economic Journal, Vol. VIII (1898), pp. 325-332, 
 and Consular Report in Congressional Record Vol. 45, p. 1112.
 
 HOLLAND 
 
 137 
 
 We have in Holland not one single income-tax; we 
 have two taxes which combined are intended to tax the 
 whole income. The first is the Property Tax; it taxes the 
 value of all the property that a person possesses beyond a 
 certain amount (fl. 10,000) ($4,020) at a certain rate i^ 
 florins for every 1,000 up to 200,000 florins; the remainder 
 is taxed at the rate of 2 florins in every 1,000. It follows 
 that the owner of property worth 
 
 
 
 Pays Per Mille 
 
 50,000 fl. 
 
 ($ 20,100) 
 
 50 fl. ($ 20.10) or 1.000 =0.1 % 
 
 100.000 " 
 
 ( 40,200) 
 
 112^' 
 
 ( 45.22) 
 
 1.125 =0.11 % 
 
 200,000 " 
 
 ( 80,400) 
 
 237^' 
 
 ( 95.45) 
 
 1.1875=0.118% 
 
 400,000 " 
 
 ( 160,000) 
 
 637^' 
 
 ( 256.27) 
 
 1,5937=0.159% 
 
 1,000,000 " 
 o rw (\c\c\ " 
 
 ( 402,000) 
 
 ( A CO/I (\fif\\ 
 
 1,837^2 ' 
 
 OQ O9>rl/ ' 
 
 ( 738.67) 
 
 ( Q KOO Rrf\ 
 
 1.8375=0.183% 
 
 -f f\QRi (\ mof/_ 
 
 The second tax is called the Tax on industrial and other 
 revenues, to which all incomes are subject which do not fall 
 under the property tax. In the case of a mixed income 
 income from property used by its owner for commercial or 
 industrial purposes the law assumes that 4 per cent of 
 such capital has been taxed already by the property tax, so 
 that only the remainder falls under the other tax. To put it 
 briefly : let the income which a man draws from his business 
 be 10 per cent of the capital invested ; then the tax on in- 
 dustrial and other revenues will only take account of so 
 much of these 10 per cent as remains after a deduction of 
 4 per cent, which means that the industrial income will be 
 taxed as if it amounted only to 6 per cent of the capital 
 invested. 
 
 Both taxes are graduated, and the graduation has been 
 arranged in such a manner that industrial incomes are taxed 
 at a higher rate when the recipients are also owners of 
 property. A man for instance, receiving an annual salary 
 of 10,000 florins, will pay more if he is also a capitalist than 
 he will pay if he has no other income besides these 10,000 
 florins. It is unnecessary to dwell on the rather complicated 
 provisions which have been framed for this purpose, for one 
 of the chief motives, which led the Government to make the 
 proposal I shall presently explain, was to simplify this part 
 of the legislation. It is extremely difficult to bring two 
 graduated taxes, each of them taxing only a part of the in- 
 come, so in harmony with each other that their united work-
 
 138 INCOME TAXATION 
 
 ing is the same as if they formed only one tax. The object, 
 indeed, has been attained by the Dutch law, but it must be 
 acknowledged that this could only be done by reducing the 
 graduation (practically speaking, for there are separate 
 scales for the minor incomes) to two stages. In the prop- 
 erty tax there is no higher rate of taxation above the 2 florins 
 for every 1,000; this rate is applied to all property exceed- 
 ing 200,000 florins, however large the exceeding portion 
 may be. In the tax on industrial incomes the same principle 
 has necessarily been adopted. Of course, it would have 
 been mathematically feasible to increase the number of 
 stages indefinitely, but then the law would have been en- 
 cumbered with further complications which would have 
 rendered it a mystery to the ordinary reader. 
 
 The property tax is levied according to the value of 
 the property at the commencement of the fiscal year and 
 the tax on incomes in accordance with the probable in- 
 come during the current fiscal year. Incomes for tempor- 
 ary work alone are brought under the income of the fiscal 
 year following that in which they are made. 
 
 In computing business incomes the net product of an- 
 nual income is taxed in so far as it consists of : 
 
 1. Profits, gains, earnings and emoluments; 
 
 2. Temporary allowances, half-pay allowances, pen- 
 sions, annuities, grants due, expenses allowed for board 
 and lodging and allowances due and to become due from 
 non-residents who are not assessable. 
 
 In calculating the net amount of profits and losses 
 deductions may be made as follows : 
 
 a) Interest from capital employed in business, at 4 
 per cent unless any other rate is mentioned, in so far as 
 the revenue from such capital is not part of the pro- 
 fessional income.
 
 HOLLAND 
 
 *39 
 
 b) Cost of maintaining and repairing objects ex- 
 clusively used for the purpose of trade or business. 
 
 c) Salaries, wages, rents of warehouses, stores, 
 offices and other premises, with all necessary expenses of 
 carrying on the trade or business from which the income 
 is derived. 
 
 f) Debts and uncollectable credits. 
 
 g) Wear and tear and general depreciation. 
 
 h) Insurance premiums and payments made to 
 charitable and benevolent funds and to pensions for 
 families of employees and shares and profits granted to 
 them. 
 
 In reaching the basis of the property tax (Ver- 
 moegensbelasting} the taxpayer is charged with all of his 
 own and his wife's property and four fifths of that of 
 which he has the use; but this does not include furniture, 
 clothes, works of art, jewels, life insurance policies, and 
 such other personal belongings as are not used com- 
 mercially. 
 
 As to the valuation of real estate, there is the some- 
 what curious provision that the owner may usually choose 
 which of two methods he will adopt. He may elect to 
 have it valued 
 
 1. At twenty times the assessed annual value as de- 
 termined by the law for taxing land and buildings, with 
 certain deductions for State ground rents, "centimes 
 additionels" and amounts of receipts from mortgages and 
 other rents ; or 
 
 2. At the estimated selling value. He must, how- 
 ever, apply the same method to all of his real estate ; and 
 building ground (exclusive of gardens and parks) must
 
 140 
 
 INCOME TAXATION 
 
 always be assessed at its market value when such value 
 exceeds one florin per centiare. 
 
 Certain incomes, such as those derived from agricul- 
 ture, horticulture, forestry, arboriculture, bulb-culture, 
 cattle breeding, land and peat exploitation, quarries and 
 mines are practically exempt from taxation, it being as- 
 sumed that the income is 4 per cent and, as that amount is 
 exempt, there is nothing left to tax. 
 
 Co-operative Societies and Joint Stock Companies are 
 in a class by themselves and pay a uniform tax of Z l /2 
 per cent of the profits realized. 
 
 The following condensed statement of rates is the 
 arrangement adopted by Seligman. The American 
 equivalent for florins 14 as also the percentages have been 
 added. 15 
 
 Table A. 
 
 Incomes from 
 
 Labor 
 Fl. 650 ($261) to fl. 
 
 700 ( 281) 
 
 750 ( 301) 
 
 800 ( 321) 
 
 850 ( 342) 
 
 900 ( 362) 
 
 950 ( 382) 
 
 1,000 ( 402) 
 
 1,050 ( 422) 
 
 1,100 ( 442) 
 
 1,150 ( 462) 
 
 1,200 ( 482) 
 
 1,250 ( 502) 
 
 1,300 ( 523) 
 
 1,350 ( 543) 
 
 1,400 ( 563) 
 
 1,450 ( 583) 
 
 1,500 ( 603) 
 
 1,600 ( 643) 
 Over fl. 8,200 ($3,300) 
 
 700 
 
 750 
 
 800 
 
 850 
 
 900 
 
 950 
 
 1,000 
 
 1,050 
 
 1,100 
 
 1,150 
 
 1,200 
 
 1,250 
 
 1,300 
 
 1,350 
 
 1,400 
 
 1,450 
 
 1,500 
 
 1,600 
 
 8,200 
 
 Tax in 
 Florins 
 
 1 .. 
 
 2 .. 
 2.75. . 
 3.50.. 
 4.25.. 
 5 .. 
 5.75.. 
 6.50. . 
 7.25.. 
 8 .. 
 8.75.. 
 9.50. . 
 
 Percentage 
 (on lower am't) 
 
 0.15 
 
 0.28 
 
 0.36 
 
 0.43 
 
 0.5 
 
 0.55 
 
 0.6 
 
 0.65 
 
 0.69 
 
 0.72 
 
 0.76 
 
 ..0.79 
 
 10.25 0.82 
 
 11 0.84 
 
 11.75 0.87 
 
 12.50 0.89 
 
 13.25 0.91 
 
 14 0.93 
 
 14-f 2% on surplus over fl. 1,500 
 148+3.20% on surplus over fl. 8,200 
 
 The Dutch florin is equal to 40.2 cents of American money. 
 Seligman, Essays in Taxation, 2nd Ed., pp 328, 329, Progres- 
 sive Taxation, etc., 2nd Ed., p. 80. 
 
 14 
 15
 
 HOLLAND 
 
 141 
 
 Table B. (for those liable also to the property tax) 
 
 When property amounts 
 to 13,000 fl. or 14,000 fl. 
 
 Tax 
 
 Income (In florins) 
 250- 300 2 
 
 300- 350 2.75 
 
 350- 400 3.50 
 
 400- 450 4.25 
 
 450- 500 5 
 
 500- 550 5.75 
 
 550- 600 6.50 
 
 600- 650 7.25 
 
 650- 700 8 
 
 700- 750 8.75 
 
 750- 800 9.50 
 
 800- 850 10.25 
 
 850- 900 11 
 
 900- 950 11.75 
 
 950-1,000 12.50 
 
 1,000-1,050 13.25 
 
 1,050-1,150 14 
 
 Over 1050 14+ 
 
 2 florins for every hun- 
 dred florins on surplus 
 over 1,050 fl. But if the 
 income, together with 4 
 per cent on the taxable 
 property, exceeds 8,150 
 fl., a tax of 1.20 per cent 
 is payable on the excess. 
 
 When property varies be- 
 tween 15,000 fl. and 200,000 fl. 
 
 Tax 
 
 (In florins) 
 
 1.25 
 
 2 
 
 2.75 
 
 3.75 
 
 4.25 
 
 5 
 
 5.75 
 
 6.50 
 
 7.25 
 
 Income 
 250- 300 
 300- 350 
 350- 400 
 400- 450 
 450- 500 
 500- 550 
 550- 600 
 600- 650 
 650- 700 
 700- 750 
 750- 800 
 800- 850 
 850- 900 
 900- 950 
 950-1,000 
 1,000-1,050 
 1,050-1,100 
 1,100-1,200 
 Over 1,100 
 
 8.75 
 9.50 
 10.25 
 11 
 
 11.75 
 12.50 
 13.25 
 14 
 14+ 
 
 2 florins for every hun- 
 dred florins on surplus 
 over 1,100 fl. But if the 
 income, together with 4 
 per cent on the taxable 
 property, exceeds 8,200 
 fl., a tax of 1.20 per cent 
 is payable on the excess. 
 
 When property exceeds 200,000 fl., the tax is 3.20 fl. 
 on every hundred florins income over 200 florins. 
 The exemptions are : 
 
 1. For professional incomes of persons not 
 assessed for property tax 650 fl. 
 
 2. For professional incomes of persons 
 
 who are assessed also for property tax 250 fl. 
 
 3. For property 
 
 a) a basal exemption of 13,000 fl. 
 
 b) for incomes over 15,000 fl. and under 
 
 200,000 fl 10,000 fl. 
 
 The administration of the tax is controlled by elabo- 
 rate regulations resembling in some respects the English
 
 142 INCOME TAXATION 
 
 system. Among the special features of the law is the 
 provision by which the income tax can be divided into 
 five payments at intervals of two months. The property 
 tax is payable one half November first and one half April 
 first. Taxpayers are expected to make returns and upon 
 their failure to do so, official returns are made for them 
 and 25 per cent added. An appeal lies primarily to the 
 Committee of Assessors and from that Committee to the 
 Council of Appeal (Raad van Beroep), which latter body 
 is composed of three members who are appointed, one by 
 the States Deputy of the province, one by the District 
 Court within whose jurisdiction the Council has its seat, 
 and one by the Minister of Finance. Secrecy is required 
 from the officials in regard to the contents of the returns. 
 If the tax is not paid within the time specified the Re- 
 ceiver of Taxes who issued the demand sends a written 
 warning requiring payment. If this is disregarded a 
 second summons for the same period is issued after which 
 a compulsory writ may be served and made executory by 
 the justice of the peace of the district. 
 
 There are also local income taxes which were levied 
 for many years before the State tax went into force. 
 The system of exemption and progression was carried so 
 far in some of the communes (Gemeenten) that the 
 Government was compelled, in 1897, to prescribe cer- 
 tain limitations as follows : 
 
 In levying a capitation or other direct income tax, no 
 revenues may be left out of calculation, nor be calculated or 
 estimated under their real amount, except in so far as in the 
 case of variable incomes a mean value out of two or more 
 years may be computed. 
 
 The amount of the tax must be the same percentage for 
 all incomes, after deduction from all incomes of a sum neces- 
 sary for livelihood, equal for all incomes or varying only ac-
 
 HOLLAND 
 
 cording to the construction of the family. Deviation from 
 this rule is permitted if existing regulations or special cir- 
 cumstances make such deviation desirable, and on condition 
 that the distribution of charges do not vary considerably 
 from that which would be obtained by adhering to the said 
 rule. 
 
 In Amsterdam incomes were divided into five classes ; 
 in the first two classes the rate was applied to one- fourth 
 of the income; in the next two classes to one half and in 
 the next to three fourths. In the town of Terneuzen, 
 there were a large number of classes and the rate was 
 percentual, the first class (300-399 fl.) paying one half 
 of one per cent; the second (400-549 fl.) five eighths of 
 one per cent and so on to the nineteenth class (7,000 fl.) 
 which paid four per cent. 16 In the Friesian Commune, 
 Doniawerstal, the progressive feature is introduced by 
 levying a uniform rate upon an increasing percentage of 
 the income as shown below : 17 
 
 Portion 
 Income taxed 
 
 Portion 
 Income taxed 
 
 250 
 
 20 
 
 300 
 
 25 
 
 400 
 
 30 
 
 500 
 
 35 
 
 600 
 
 40 
 
 700 
 
 45 
 
 800 
 
 50 
 
 900 
 
 ..55 
 
 1,200 
 
 65 
 
 1,400 
 
 70 
 
 1,600 
 
 75 
 
 1,800 
 
 80 
 
 2,100 
 
 85 
 
 2,400 
 
 90 
 
 2,700 
 
 95 
 
 
 
 The place which the business or income tax fills in 
 the Dutch system may be seen by the following statement 
 of chief sources of revenue for 1905 : 
 
 16 . Seligman, Progressive Taxation, 2nd Ed., p. 81. 
 
 17 . Reports from His Majesty's Representatives Abroad re- 
 specting Graduated Income Taxes in Foreign States. Misc. No. 2, 
 1905, p. 92.
 
 144 INCOME TAXATION 
 
 Business income tax 4.24% 
 
 Property " " 4.73 
 
 Land tax 7.87 
 
 House tax 5.71 
 
 Excise 31.49 
 
 Succession (inheritance) tax 8.48 
 
 Stamp and registration tax 6.90 
 
 Import dues 6.65 
 
 Other revenues 23.95 
 
 Total 100 
 
 Of the business tax 72.18 per cent is paid by persons 
 residing in the country; 2.88 per cent by non-residents 
 and the remaining 24.94 per cent by corporations. 
 
 As showing the number of persons and amount of in- 
 come in different classes in 1906-7, the following table 
 may be of interest : 19 
 
 Grade of No. of 
 
 Taxable Income Taxpayers Income Taxed 
 
 600 fl. and above 368,774 514,064,000 fl. 
 
 1,500 
 
 3,500 
 
 8,000 
 
 20,000 
 
 50,000 
 
 81,701 269,172,000 
 
 18,248 137,252,000 
 
 4,091 69,277,000 
 
 769 31,217,000 
 
 144 13,400,000 
 
 The financial results for the year 1902-3 were that 
 306,582 taxpayers paid tax on business or professional 
 
 income to amount of 6,913,000 florins 
 
 and 83,558 taxpayers paid property tax 
 
 to amount of 7,760,000 florins. 
 
 Combining these two it appears that 390,140 taxpayers, 
 being about 7 per cent of the population, paid 14,673,000 
 fl. ($5,898,546), which would be about ten per cent of 
 the total revenue for that year (144,049,347 fl.)- 20 
 
 18 . It should be stated that for the year 1906-7 an additional 
 percentage (opcenten) of 10 per cent (of the tax) was added. 
 
 19 . Bidragen tot de Statistiek van Nederland C. I. Statistielc 
 der Rijksinkomsten over de jaren 1905 en 1906. (1908) p. LXXXIII. 
 
 20 . See Bidrag tot de Statistiek, etc. of. cit. p. XII and Table 
 I, p. 2.
 
 HUNGARY 145 
 
 In 1906-7 the net business tax amounted to 8,508,516 
 fl. and the net property tax to 8,859,296.97 fl., or a total 
 of 17,367,813 fl. ($7,081,860.83), which was 41.87 per 
 cent of the total direct taxes for that year. 
 
 In 1908 the income tax produced $6,724,913.28, 
 which was 9 per cent of the total revenues ($73,583,- 
 844.78 ). 21 
 
 Java. This colony of the Netherlands levies an in- 
 come tax which is modeled after that of the parent 
 country. The yield of the income tax proper in 1909 was 
 4,230,000 Guilder ($1,700,460), and of the "tax on 
 trades" (bedrijfsbelasting) 4,858,500 Guilder ($1,953.- 
 117). 
 
 HUNGARY 
 
 The direct personal income tax constituted but one 
 feature of the general scheme of fiscal reform adopted 
 by the Hungarian government in 1909. As in Austria, 
 the whole system is extremely complex and the taxation 
 of incomes directly and indirectly is so interwoven and 
 blended with other forms of taxation that it is hardly 
 possible to give any intelligible account of it within a 
 brief space. 
 
 There are six principal classes of direct taxes which 
 may be summarized as follows: 1. ground (or real 
 estate) tax; 2. classified house tax; 3. tax on capital, in- 
 
 21 . I am indebted to Hon. Henry H. Morgan, United States 
 Consul at Amsterdam, for these and other recent statistics.
 
 146 INCOME TAXATION 
 
 terest, annuities, etc. ; 4. produce duties (Erwerbssteuern) 
 on net profits of such business enterprises as are liable to 
 inspection by the public auditor; 5. general produce 
 duties ; 6. the income tax. All of these taxes are based, to 
 a large extent, upon income. For example, the land tax is 
 based upon 20 per cent of the "cadastral" (assessed) net 
 profits; the house tax on 9 to 16 per cent of the gross 
 profit from rentals ; the capital tax on 5 per cent of gross 
 profits and 2 per cent of certain annuities; the produce 
 tax on varying percentages such as 4 per cent for income 
 from the learned professions; 5 per cent and 7 per cent 
 on mining enterprises and certain agricultural and in- 
 dustrial combinations; and 10 per cent on profits of 
 limited liability companies. 
 
 The rates of the income tax proper are progressive. 
 The progression is not percentual, but there is a great 
 number of grades with a fixed tax for each grade. Thus 
 incomes of from 800 to 900 crowns ($162.40 to $182.70) 
 pay a tax of 5 crowns ($1.00), which would be 0.62 per 
 cent on the smaller amount and 0.55 per cent on the 
 larger. The rate on incomes of from 900 to 1,000 crowns 
 is 6 crowns; on 1,000 to 1,100, 7 crowns and so on until 
 
 at 2,000 crowns ($ 406) it reaches 20 crowns or 1% 
 
 " 5,600 " ( 1,288) " " 112 " " 2 " 
 
 " 15,000 " ( 3,018) " " 450 " " 3" 
 
 " 48,000 " ( 9,744) " " 1,920 " " 4" 
 
 " 120,000 " ( 24,360) " " 6,000 " " 5" 
 
 Above 120,000 crowns the payments increase in such 
 manner as to preserve the 5 per cent rate. 22 
 
 In the case of limited liability companies and trade 
 unions dealing exclusively with industrial products the 
 
 22 . Congressional Record, Vol. 45, p. 1108.
 
 INDIA 147 
 
 rate is uniformly 3 per cent upon all incomes over 15,000 
 crowns ($3,045). 
 
 There is a supplementary tax upon incomes from 
 salaries and pensions in excess of 7,000 crowns ($1,421). 
 The rates of this supplementary tax vary from 0.2 per 
 cent to 16 per cent. 
 
 The law discriminates rather harshly against "ab- 
 sentee landlords," as there is a so-called absentee tax 
 (Abzvescnheitssteuer} which is levied at three times the 
 regular rate on the incomes of such persons. As is usual 
 in most European countries, the whole aggregate income 
 of the members of a household is reckoned as a unit. 
 
 In computing incomes the following deductions are 
 permitted : a. ) Expenses incurred in acquiring, insuring 
 and maintaining income; b. ) business losses; c.) insur- 
 ance ; d. ) indirect taxes ; e. ) legal payments and duties in 
 connection with business operations; f.) wear and tear; 
 g.) interest on debts. 
 
 The provisions for the administration of the tax are 
 substantially similar to those in force in Austria. 
 
 INDIA. 
 
 The income tax of India has been in force since 1886, 
 and bears some resemblance to that of England in so far 
 as it divides all incomes into schedules, and makes pro- 
 vision for collection at the source. The graduation of 
 the rate is so slight, ranging from 2 per cent to 2 l / 2 per 
 cent, that the tax is substantially proportional. 
 
 Income is classified with reference to its sources into 
 four categories which, with the rates, are as follows :
 
 148 INCOME TAXATION 
 
 Approximate 
 Rate Percentage 
 
 I. Salaries and pensions 
 
 Less than 2,000 rupees ($666.67), 4 pies in the rupee 2 
 
 Moie than 2,000 " 5 " " " " 2.5 
 
 II. Profits of companies 
 
 On all net profits 5 " " " " 2.5 
 
 III. Interest on securities 
 
 Less than 2,000 rupees 4 " " " " 2 
 
 More than 2,000 " 5 " " " " 2.5 
 
 IV. Other sources 
 
 1,000 to 1,999 rupees graded from 
 
 20 rupees on 1,0002 
 to 42 " 1,9992.1 
 
 2,000 rupees and upwards 5 pies in the rupee 2.5 
 
 The exemption in the first category is 1,000 rupees 
 ($333.33). In the second category there is no exemp- 
 tion, but certain deductions from gross income are per- 
 mitted. These deductions may be summarized as fol- 
 lows: 
 
 1. Repairs of tools of trade. 
 
 2. Insurance and rent of business premises. 
 
 3. Cost of repairs and renewal of business premises. 
 
 4. Wages paid. 
 
 5. Net losses. 
 
 6. Bad debts ascertained and written off for the first 
 time during the year. 
 
 7. Interest on borrowed money invested in business. 
 
 8. Amount expended to make good depreciation of 
 machinery or plant, but not to exceed 10%. 
 
 In the case of income from houses there may be de- 
 ducted : 
 
 1. Rent or quit-rent paid by person assessed, but not 
 taxes. 
 
 2. Insurance. 
 
 3. Cost of repairs. 
 
 4. Cost of collecting rent, not exceeding 6% of gross 
 rental.
 
 INDIA 149 
 
 5. Interest payable to a mortgagee not in possession. 
 
 The exemption, in the case of the third category, is 
 1,000 rupees, which applies, as also in the first and fourth 
 categories, only to persons whose income from all sources 
 is less than that sum. Incomes of more than 1,000 rupees 
 would pay in full. For example, an income of 1,200 
 rupees would be taxed on 1,200 rupees and not on 200. 
 The incomes under the third category are collected for 
 the most part at the source, and, in order to secure the 
 benefits of the lower rates, the taxpayer can secure from 
 the collector a certificate that his income does not exceed 
 a certain sum. If this certificate shows that the total in- 
 come from all sources is less than 1,000 rupees the person 
 paying interest will make no deduction; if the income is 
 more than 1,000 and less than 2,000 rupees, 2 per cent 
 will be deducted from the interest on the securities and 
 paid to the government. If no certificate is presented it 
 is the duty of the person paying the interest to withhold 
 the highest rate, that is % l / 2 per cent, for the income tax. 
 This would seem to be an improvement over the English 
 system by which the highest amount is always withheld 
 and the taxpayer is forced to make reclamation for any 
 over-payment. 
 
 The results of the income tax in India have been fair- 
 ly successful when the smallness of the rate and the 
 poverty of certain districts are taken into consideration. 
 The yield of the tax in 1906-7 was 21,171,639 rupees 
 ($6,869,138). The total amount of income assessed in 
 1906-7 was 850,500,000 rupees ($283,500,000). The 
 number of income taxpayers was 255,762, or 0.11 per 
 cent of the total population of 231,899,507. 23 The cost of 
 
 23 . Consular Report Congressional Record, Vol. 45, p. 1110.
 
 I5O INCOME TAXATION 
 
 collection was 362,042 rupees ($120,681) or 1.7 per cent. 
 The officers who collect the income tax are salaried 
 officials employed in connection with land revenue and 
 general administration. 
 
 ITALY. 
 
 In the Florentine republic, as early as 1447, a pro- 
 gressive income tax was levied which came to be known 
 as the dccina dispiacente, or displeasing tax. The tax- 
 payers were divided into fourteen classes and the rates 
 levied on these classes varied from eight to fifty per cent. 
 This method of taxation experienced many changes, being 
 frequently dropped and restored until it was definitely 
 abandoned in 1530. 
 
 The modern tax upon income of personal property 
 (imposta siii redditi della richezza mobile) was intro- 
 duced in Italy in 1864. As originally adopted the tax 
 was for a fixed sum annually (30,000,000 lire), which 
 sum was apportioned "repartitioned" on the various 
 provinces; but this gave rise to so much complaint that, 
 in 1866, it was changed to a definite percentage tax. The 
 law experienced a radical revision in 1877. It was 
 amended repeatedly in the eighties and, in 1894, to meet 
 a deficit, the rate was raised from 13.20 to 20 per cent. 
 The last revision was in 1907 and resulted in the pro- 
 mulgation of the Nuovo regolamento per I' imposta sui 
 redditi della richezza mobile, or new law for the taxation 
 of income from personal property. 2 * 
 
 24 . Handwoerterbuch der Staatswissenschaften, 3d Ed. (1909) 
 p. 656.
 
 ITALY I^I 
 
 The Italian system presents numerous analogies to 
 the English income tax law, particularly in its divisions 
 into schedules and the provisions for collecting taxes at 
 their source. But it differs from the English plan, and 
 indeed from that of most other countries, in that it does 
 not tax incomes from real estate. For this reason it is 
 often described as a "partial income tax." The other 
 direct taxes are the real estate tax and the house tax 
 which are not based on income, but on assessed valua- 
 tions. 
 
 The rates have been gradually increased from 8 per 
 cent in 1866 to the present tax of 20 per cent, which, 
 however, does not apply to all incomes, as it is modified 
 materially for certain classes by a very complicated sys- 
 tem of abatements, exemptions and deductions. 
 
 The law of 1894 originally divided all incomes into 
 four categories or schedules, numbered A, B, C and D, 
 as in England; but it has been found convenient to sub- 
 divide the first schedule into two part^ designated as Al 
 and A2, so as to differentiate two kinds of income from 
 capital. Thus the schedules are : 
 
 Al. Interest and premiums of loans of provinces and 
 communes and of companies based on guaranties and sub- 
 ventions of the government, and premiums of authorized 
 lotteries, etc. ; but the government debt proper is not in- 
 cluded owing to the non-taxability of the securities into 
 which it was converted. 
 
 A2. All other incomes arising from investment of 
 capital, such as perpetual annuities, loans, bonds, etc. 
 
 B. Income resulting from combinations of capital 
 and labor as in commercial and industrial enterprises.
 
 152 INCOME TAXATION 
 
 C. Incomes arising wholly from personal exertion, 
 as in trades and professions. 
 
 D. Wages, pensions and salaries paid by communes, 
 provinces or the Government. 
 
 While the general rate is 20 per cent the only incomes 
 subject to it are those embraced in schedule Al. As to 
 the other schedules, the amount of tax is reduced by 
 abatements as follows : 
 
 In Schedule A2 (interest on capital other than 
 government securities) the tax is levied on only 
 30/40 of the income, thus reducing the rate to. . 15% 
 In Schedule B (mixed incomes involving capital 
 and labor) the tax is levied on 20/40 of the in- 
 come, reducing rate to 10% 
 
 In Schedule C (wages from private employment) 
 the tax is levied on 18/40 of the income, reduc- 
 
 rate to 9% 
 
 In Schedule D (wages from public employment) 
 the tax is levied on 15/40 of the income, making 
 
 tax equivalent to 7^ % 
 
 It will be observed that Schedule A refers wholly to 
 income from capital ; Schedule B to incomes produced by 
 the combination of labor and capital; and Schedules C 
 and D to incomes resulting wholly from labor. 
 
 Incomes in Schedules B, C and D which, after mak- 
 ing the abatements above mentioned, are under 400 lire 
 ($77.20), are entirely exempt. As to incomes in the 
 same schedules which are not collected at source, and 
 which amount, after the abatements, to between 400 and 
 800 lire, there are deductions as follows : 
 
 Income Deduction 
 
 400 to 500 lire 250 lire 
 
 501 " 600 " 200 " 
 
 601 " 700 " 150 ' 
 
 701 " 800 " 100 "
 
 ITALY I3 
 
 The lowest per cent of tax would therefore be 
 reached by an income of 801 lire, which would be en- 
 titled : first, to an abatement of 20/40, bringing the 
 amount down to 401 lire, and second, to a deduction of 
 250 lire which would reduce it still further to 151 lire. 
 The tax on 151 lire at 20 per cent would be 30.20 lire, 
 which would be practically 3.75 per cent on the original 
 800 lire. 
 
 These deductions were evidently intended to lighten 
 the burden on smaller incomes and render the step less 
 abrupt from exempt incomes to those which pay the tax ; 
 but the resulting progression is not carried far enough 
 and the small incomes between 1,600 and 5,000 lire ($320 
 to $1,000) pay the same rate as the largest fortunes. 
 
 The administration of the tax is rendered difficult not 
 only by the extremely high rate, which is in itself a strong 
 incentive to fraud and evasion, but also by the cumbersome 
 and complicated system in vogue which requires the ser- 
 vices of a great number of officials and still leaves many 
 loop-holes of escape for the shrewd and not over-scrupul- 
 ous taxpayer. It would lead too far to attempt any de- 
 tailed description of the methods of assessment and col- 
 lection, but it may be well to mention the fact that a con- 
 siderable portion of the tax is collected at the source 
 particularly all salaries, pensions and interest paid by the 
 government or provinces. All corporations are required 
 to deduct and pay over to the government the income tax 
 from dividends, and employers are required to make 
 similar deductions from wages of employees ; but this last 
 requirement is loosely administered as the employers are 
 required to report only once in two years the number of 
 persons in their employ on a certain date and it is not 
 likely that all the money deducted reaches the govern- 
 ment.
 
 154 INCOME TAXATION 
 
 In making the assessment there is first a list of tax- 
 payers (la lista), then the tax list (tabella) from which 
 is made up the assessment roll (rcgistro) which in turn 
 serves as the basis of the tax roll (il ruolo). The tax roll 
 is examined and revised by various officials such as the 
 "intendantes," the perfect and the mayor, after which it 
 reaches the hands of the communal collectors (esattori) 
 who collect biennially. The collection of the tax is farmed 
 out to the lowest bidder. The average percentage al- 
 lowed by the contracts for the decade 1903-1912, varies 
 from a minimum of .19 lire to a maximum of 6 lire 
 (6%). It should be mentioned that the government adds 
 2 per cent (of the tax) to the amount of the tax to cover 
 expenses of collection. 25 
 
 As has been intimated, the extremely high rates which 
 have been adopted have had a tendency to make the ad- 
 ministration of the law very difficult and are the cause of 
 much fraud and evasion. Out of a population of nearly 
 30,000,000 people only 30,194 persons were found in one 
 year who paid income on more than 2,000 lire (say $400) 
 and of this number only 8,630 were classed as having in- 
 comes exceeding 5,000 lire ($1,000). 26 It appeared from 
 the same statistics that the average income of a doctor 
 was less than $100 and of a lawyer or civil engineer less 
 than $150. On the other hand, persons receiving govern- 
 ment salaries or pensions, or subject to deduction of in- 
 come at source, were unable to escape or evade the tax 
 and the result was that it bore very unequally upon differ- 
 ent classes. 
 
 The total product of the tax in the fiscal year ending 
 July 1, 1907, was 275,600,000 lire ($55,120,000). As 
 the total receipts for the Kingdom for the same year 
 
 25 . Reports from His Majesty's Representatives Abroad re- 
 specting Graduated Income taxes, Misc. No. 2, (1905) p. 131. 
 
 26 . Vidal, E. L'Impot sur le Revenu. Revue Internationale du 
 Commerce, de 1'Industrie et de la Banque, Sept. 30, 1904.
 
 ITALY 
 
 155 
 
 were 1,954,500,000 lire, it thus appears that the income 
 tax contributed 14.1 per cent of the total income. 
 
 The product of the tax, in round figures, for a term 
 of years, was as follows : 
 
 1889-90 230,690,000 lire ($46,138,000) 
 
 1890-91 234,350,000 ( 46,870,000) 
 
 1891-92 233,700,000 ( 46,740,000) 
 
 1892-93 23 1,710,000 ( 46,942,000) 
 
 1893-94 234,370,000 ( 46,874,000) 
 
 1894-95 287,310,000 ( 57,462,000) 
 
 1895-96 289,340,000 ( 57,868,000) 
 
 1896-97 288.340,000 ( 57,668,000) 
 
 1897-98 286,390,000 ( 57,278,000) 
 
 1898-99 287,100,000 ( 57,400,000) 
 
 1899-00 289,060,000 ( 57,812,000) 
 
 1900-01 261,450,000 ( 52,290,000) 
 
 1901-02 294,730,000 ( 58,946,000) 
 
 1902-03 298,040,000 ( 59,608,000) 
 
 1903-04 298,260,000 ( 59,652,000) 
 
 1904-05 300,670,000 ( 60,134,000) 
 
 1905-06 305,250,000 ( 61,050,000) 
 
 1906-07 275,600,000 ( 55,120,000) 
 
 The average of the per capita tax for the same years 
 was 8.54 lire ($1.65) ; but no particular significance can 
 be attached to this figure unless the number of people 
 who paid the tax and the classes in which they belong are 
 known. The number of persons who paid income tax 
 can only be given for those who are enrolled in the 
 register (ruoli nominativi) and this number, for 1904, 
 was about 1,200,000. The number of those reached by 
 retaining the tax at the source (per ritenuta) is not 
 known, as no statistics are available. The amount of tax 
 collected at the source in 1904, was nearly 50 per cent of 
 the total. 
 
 Contrary to the experiences of most countries the 
 amount collected has been decreasing for the past few 
 years. According to a recent Consular report 27 the 
 amount collected in the fiscal year ending July 1, 1908, 
 was only 255,835,378 lire ($49,376,229) or 16 per cent 
 less than in 1906-7. 
 
 27 . Congressional Record, Vol. 45, p. 1114.
 
 CHAPTER IX. 
 
 JAPAN, LEEWARD ISLANDS, LUXEMBURG, 
 
 PANAMA, PHILIPPINES, RUSSIA, 
 
 FINLAND. 
 
 JAPAN. 
 
 The system of income taxation now in force in Japan 
 was established in 1899. Supplementary and additional 
 rates were provided for in 1904-5 to meet the expenses 
 of the war with Russia. Although these additional taxes 
 were to be abolished upon the restoration of peace they 
 were made permanent by the post-bellum financial scheme 
 adopted by the Twenty-second Diet in 1906. 
 
 The classes and rates are shown by the following 
 
 table: 1 
 
 Additional 
 
 Ordinary rates under Total 
 rates special law rate 
 
 CLASS 1. Per Cent Per Cent Per Cent 
 
 Taxes on incomes of juridical persons 
 (companies or corporations) 
 
 A. Joint stock companies or joint 
 
 stock partnerships organized 
 with at least 21 shareholders 
 or shareholding partners 2.5 3.75 6.25 
 
 B. Other juridical persons with 
 
 incomes under 
 
 5,000 yen ($ 2,500) 2.5 2 4.50 
 
 10,000 yen ( 5,000) 2.5 2.25 4.75 
 
 15,000 yen ( 7,500) 2.5 2.50 5 
 
 20,000 yen ( 10,000) 2.5 3 5.50 
 
 30,000 yen ( 15,000) 2.5 4.25 6.75 
 
 50,000 yen ( 25,000) 2.5 5.75 8.25 
 
 100,000 yen ( 50,000) 2.5 7.50 10 
 
 100,000 yen and upwards 2.5 10 12.50 
 
 1 . The Ninth Financial and Economical Annual of Japan, 1909, 
 p. 16.
 
 15 000 ven ( 
 
 7 500) 
 
 35 
 
 10,000 ven ( 
 
 5,000) 
 
 3.0 
 
 5 000 yen ( 
 
 2 500) 
 
 2.5 
 
 3,000 yen ( 
 
 1,500) 
 
 2.0 
 
 2,000 yen ( 
 
 1 000) 
 
 1.7 
 
 1,000 yen ( 
 
 500) 
 
 1.5 
 
 500 yen ( 
 
 250). . 
 
 1.2 
 
 300 ven ( 
 
 150) . . 
 
 ..1.0 
 
 JAPAN 157 
 
 CLASS 2. 
 
 Taxes on interest on oublic-loan bonds. 
 or company debentures payable in 
 places where the income tax law is 
 in force 2.0 None 2 
 
 CLASS 3. 
 
 Taxes on incomes not included in the 
 two preceding classes: 
 Not less than 
 
 100,000 yen ($50,000) 5.5 14.85 20.35 
 
 50,000 yen (25,000) 5.0 12 17 
 
 30,000 yen (15,000) 4.5 9.45 13.95 
 
 7.60 11.60 
 
 5.95 9.45 
 
 4.50 7.50 
 
 3.50 6 
 
 2.60 4.60 
 
 2.21 3.91 
 
 1.95 3.45 
 
 1.32 2.52 
 
 1 2 
 
 The exemption applies only to incomes in Class 3 and 
 amounts to 300 yen ($150). The smallness of the ex- 
 emption is no doubt due to the low standards of wages 
 and living in many portions of the country. If the 
 aggregate of the incomes of the members of a family or 
 of the persons living in the same house exceeds 300 yen 
 the exemption does not apply. 
 
 The deductions or exemptions permitted in computing 
 incomes are as follows : 
 
 a. Salaries of officers and privates in the army and 
 navy while engaged in war. 
 
 b. Allowances to widows and orphans and pensions 
 to the sick and wounded. 
 
 c. Money received for traveling or school expenses 
 and legal allowances received for support. 
 
 d. Incomes of juridical persons not conducted for 
 profit (as, for example, religious, educational and 
 benevolent organizations). 
 
 e. Certain occasional incomes not derived from un- 
 dertakings conducted for profit.
 
 158 INCOME TAXATION 
 
 f. Incomes derived from property or from a trade, 
 business or profession in foreign countries, or in places 
 in which the income tax law is not in force, but this does 
 not apply to incomes of juridical persons whose principal 
 offices are located in a place where the law is in force. 
 
 g. Dividends and bonuses received from corporation 
 which pay income tax. 
 
 In fixing the amount of income under Class 1 the total 
 losses for the business year, the balance brought forward 
 from the preceding year and the amount reserved to meet 
 liabilities for insurance, are deducted from the actual 
 gross profits of the year in question. 
 
 For incomes in Class 3 the estimated annual amount, 
 after deducting the necessary expenses of making the 
 income, is taxed. As in all other countries, household 
 expenses cannot be reckoned as any part of the cost of 
 producing income. In calculating the income of agricul- 
 tural lands the average of the three preceding years is 
 taken. 
 
 Complete exemption from the income tax is granted to 
 interest on savings debentures issued in accordance with 
 the savings-debentures law of 1904, as well as to interest on 
 public-loan bonds issued for the defrayment of extraordinary 
 war expenses. All other national bonds, moreover, which 
 were formerly subject to the income tax in the same man- 
 ner as prefectural, municipal, or other public bonds, were 
 entirely relieved thereof by an imperial ordinance approved 
 by the Twenty-fifth Diet, promulgated on March 20 and 
 carried into effect on April 1, 1909. These three cases con- 
 stitute exceptions to the taxation of incomes of class 2 and 
 limit the taxable incomes thereunder to the interest on public 
 bonds other than national ones and company debentures pay- 
 able in places where the income-tax law is in force. In- 
 terest on bonds and debentures, payable in places where 
 the law is not in force, falls under incomes of class three. 2 
 
 2 . Congressional Record Vol. 45, Jan. 27, 1910, p. 1107.
 
 JAPAN 
 
 The administration of the law is in the hands of 
 officials of the department of taxation in the bureau of 
 finance. These officers are assisted, as to the third class 
 of incomes, by "income investigation committees" whose 
 members are elected by the income taxpayers of the dis- 
 trict concerned. They hold office for four years, half of 
 the number being elected every two years and receive 
 traveling expenses and certain special allowances in lieu 
 of salary. 
 
 The incomes of corporations are ascertained from 
 their annual reports, and in like manner the amounts of 
 interest paid on bonds and debentures are obtainable from 
 official records. The only necessity for appeal therefore 
 arises in connection with incomes included in Class three. 
 Within twenty days from notification of the amount of 
 his assessment the taxpayer may apply, through the chief 
 of the taxation office, for an inquiry. The matter is then 
 investigated by a permanent committee of inquiry. This 
 committee is composed of seven persons, three tax col- 
 lectors appointed by the Minister of Finance, and four 
 members of the "income investigation committee." Pend- 
 ing the report of the committee of inquiry, however, the 
 tax must be paid when due. If a taxpayer is dissatisfied 
 with the decision of the committee of inquiry he may 
 present a petition to the local authorities or bring an ac- 
 tion in the administrative court. 
 
 As to the financial results of the income tax in Japan 
 the following table will show the amounts collected for 
 a term of years : 3 
 
 3 . The Ninth Financial and Economical Annual of Japan, 1909, 
 pp. 14-15. The Japanese yen equals 49.8 cents of American money, 
 but is commonly reckoned as worth 50 cents.
 
 I6O INCOME TAXATION 
 
 1896-7 1,810,221 yen $ 905,110 
 
 1897-8 2,095,092 
 
 1898-9 2,351,420 
 
 1899-00 4,837,320 
 
 1900-01 6,368,039 
 
 1901-02 6,836,890 
 
 1902-03 7,460,692 
 
 1903-04 8,247,177 
 
 1904-05 14,369,933 
 
 1905-06 23,278,377 
 
 1906-07 26,348,739 
 
 1907-08 27,291,871 
 
 1908-09 27,571,513 
 
 1909-10 29,729,858 
 
 1,047,546 
 
 1,175,710 
 
 2,418,660 
 
 3,184,019 
 
 3,418,445 
 
 3,730,346 
 
 4,123,588 
 
 7,184,966 
 
 11,639,188 
 
 13,174,369 
 
 13,645,935 
 
 13,785,756 
 
 14,864,929 
 
 The total revenues for 1909-10 were 518,929,283 yen 
 and the total amount raised by taxation was 320,534,132 
 yen, from which it appears that the income tax amounted 
 to 5.73% of the total revenue and 9.27% of the amount 
 raised by taxation. The percentages for the preceding 
 year were 4.3 and 9.5 respectively. 
 
 In the year 1907-8 the number of income taxpayers 
 of Class 3 was 917,079, which was nearly 1.9% of the 
 total population (48,533,000 by the census of the same 
 year). Reckoning the families of these taxpayers the 
 percentage was 10.4. The number of corporations (or 
 juridical persons) of Class 1, who paid income tax dur- 
 ing the same year was 6,374. 
 
 Of the Japanese system of income taxation it may be 
 said that it probably owes its comparative success more 
 to the patriotism and devotion of the people than to any 
 peculiar provisions of the law. It is to be expected how- 
 ever that the Japanese, with their quickness and aptitude 
 to adopt modern methods, will make important changes 
 in their law within the next few years. At present no 
 differentiation is made between taxpayers having large 
 families and those who have not, nor between "earned" 
 and "unearned" incomes, except in the special provision 
 under Class 2 for the tax of 2% on the interest from
 
 JAPAN l6l 
 
 public loan bonds and company debentures. The fact 
 that the rate for corporate income is lower than the aver- 
 age rate for incomes of persons is no doubt due to a 
 desire to facilitate the floating of loans and to encourage 
 industrial enterprises. In this respect the law is in sharp 
 contrast with the laws of some of the Australian states 
 which provide a much higher rate for companies than 
 for persons. 
 
 The total amount of taxes paid by the Japanese nation 
 is extremely large as will be seen by the following extract 
 from the Japanese Chronicle : 4 
 
 The Japanese Financial Commissioner in London re- 
 cently estimated that the Japanese paid 35 per cent, in taxa- 
 tion direct and indirect. The Hochi estimates it at a much 
 larger figure. Although no precise figures regarding the 
 national wealth and the income of the people are available, 
 yet the results of investigations made by the Bank of Japan 
 and other authorities show the national wealth to amount 
 to about ten billion dollars, gold and the total income of the 
 people to be between $1,500,000,000 and $2,000,000,000. 
 This estimate appears to be fairly correct. Taking 2/3 of 
 this income as the cost of living, a surplus of about $650,- 
 000,000 will be left. The amount collected in taxes reaches 
 to between $300,000,000 and $400,000,000 for national taxes 
 and to between $750,000,000 and $1,000,000,000 for local 
 taxes. 
 
 LEEWARD ISLANDS 
 
 There are two so-called Presidencies in the Leeward 
 Islands which have adopted an income tax. 
 
 4 . United States Consular Report, August, 1908, p. 169.
 
 1 62 INCOME TAXATION 
 
 The Presidency of Antiqua 5 passed an income tax law 
 in 1900, which divided occupations into three classes : 
 
 Class A. Salaried government officials. 
 
 Class B. Professional men, etc. 
 
 Class C. Merchants. 
 
 The rate of taxation upon Class A was : 
 
 On salaries of from 100 to 150 ($486.65 to $730) 
 ~V/2 per cent. 
 
 On salaries over 150, 3 per cent. 
 
 The amount of tax collected in 1904 was 285 
 ($1,386) and the number of taxpayers twenty-three. The 
 exemption is 100. The taxes in Classes B and C are fixed 
 amounts for each occupation such as would be called 
 license taxes in the Southern states of the American 
 Union. 
 
 In the Presidency of Dominica the income tax has 
 existed since 1899. The tax is a graduated one, but no 
 distinction is made between earned and unearned in- 
 comes. In computing income, the taxes paid upon in- 
 come-producing property and for business licenses, can 
 be deducted. The rates are as follows : 
 
 Incomes exceeding 50 ($243.32) and not exceeding 
 100, 2*/ 2 per cent. 
 
 Incomes exceeding 100 ($486.65), %y 2 per cent. 
 
 All incomes of 50 or less are exempt, but the exemp- 
 tion ceases when the income is more than 50. The aver- 
 age yield of the tax for five years ending December, 1904, 
 
 5 . The Leeward Islands are under British dominion. They 
 constitute a portion of the Lesser Antilles and are situated south- 
 easterly from Porto Rico. Their population is 125,000, of which 
 less than five per cent is white. See Graduated Income Tax in 
 the Colonies. (English) Colonial Office, 1905.
 
 LUXEMBURG 163 
 
 was 467 ($2,272.42). The number of income taxpayers 
 was 100 or .003% of the population. 
 
 LUXEMBURG. 
 
 By the law of February 9, 1891, it is provided that all 
 incomes, except such as are derived from real estate and 
 mines, shall pay an impot mobilier as follows : 
 
 1. On incomes from personal property, 3 per cent. 
 
 2. On profits and gains which are the result of per- 
 sonal exertion in connection with a trade, profession, 
 commerce or industry, 2 per cent. 
 
 3. On salaries, wages, fees and pensions, one per cent. 
 The exemptions comprise : 
 
 1. Annual profits and gains of less than 100 francs 
 and salaries and pensions which do not amount to 200 
 francs. 
 
 2. Incomes of benevolent institutions and savings 
 banks. 
 
 3. Payments made to public officials to indemnify 
 them for traveling and other expenses necessarily in- 
 curred while in public service. 
 
 4. The pay of soldiers and of officers under the grade 
 of lieutenant, the wages of workingmen, journeymen, 
 domestics and servants up to 600 francs. 
 
 5. Profits of distillation. 
 
 The tax is divided into twelve payments which be- 
 come due respectively on the last day of each month. 
 
 Both the Grand Duchy and the City of Luxemburg 
 have income taxes and the amount raised in the past five 
 years is as follows : 
 
 6 . The Grand Duchy of Luxemburg was included in the Ger- 
 manic Confederation from 1815 to 1866. By the Treaty of London, 
 1867, it was declared neutral territory. The population in 1900 was 
 236,543.
 
 164 INCOME TAXATION 
 
 Grand Duchy City of Luxemburg 
 
 1906 1,296,087.58 fr. ($250,145) 568,169.66 fr. ($109,657) 
 
 1907 1,442,035.18 " (278,313) 624,148.84 " (120,461) 
 
 1908 1,662,374.97 " (320,838) 686,058.51 " (132,409) 
 
 1909 1,523,607.57 " (294,056) 610,575.51 " (117,841) 
 
 1910 1,468,035.83 " (283,331) 630,089.80 " (119,906) 
 
 The number of income taxpayers was as follows : 
 
 Grand Duchy City 
 
 1906 43,293 4,637 
 
 1907 44,595 4,264 
 
 1908 46,910 4,688 
 
 1909 46,719 4,780 
 
 1910 46,408 . 4,684 
 
 The proportion of the income taxpayers to the popula- 
 tion in the Grand Duchy for the year 1910, was 19.61 
 per cent. 7 Beginning with the year 1911, there will be a 
 small supplementary tax which is expected to produce 
 about 30,000 francs. 
 
 NORWAY 
 
 Income taxation was authorized in the City Com- 
 munes (municipalities) of Norway by the law of April 
 15, 1882, as amended by the laws of May 30, 1891, July 
 20, 1893, July 23, 1894, and July 1, 1899. The State in- 
 come tax is of much more recent origin and it is assessed 
 and collected largely by the machinery which had been 
 organized and perfected by the municipalities. The 
 methods adopted by the municipalities give evidence of 
 having been modeled to some extent upon the municipal 
 income taxes which were introduced in the Netherlands 
 at a still earlier period. 
 
 7 . The statistics given above were furnished the writer through 
 the kindness of Mons. Wagner, Inspecteur des Contributions for 
 Luxemburg. For Statistics of earlier years see Regime Fiscal des 
 Valeurs Moblilieres en Europe, Vol. 2 (1901), p. 131.
 
 NORWAY 
 
 i6 5 
 
 The general law of 1882 did not impose an income 
 tax, but was permissive in character authorizing the Com- 
 munes to levy income taxes within certain narrow limits 
 as to rates and exemptions. The law permitted double 
 taxation in respect to personal property, as both the prop- 
 erty and the income from it were taxed; but this result 
 was minimized by a requirement that the tax should not 
 exceed one-thirtieth nor be less than one-seventieth of 
 the tax laid upon an equal amount of income. The prin- 
 ciple of differentiation as to amount of exemption ac- 
 cording to the size of the family, has been carried further 
 than in any other country. All taxpayers are divided into 
 eight classes, the first class consisting of those who have 
 no children or other persons (wives not counted) de- 
 pendent upon them for support ; the second to the seventh 
 classes comprise respectively those who have 1-2-3-4-5 
 and 6 persons to support, while eight includes all who 
 have more than 7 dependents. The amount of total ex- 
 emption at the foot of the scale for each class from 1 to 
 8 respectively is 200, 250, 300, 350, 400, 450, 500 and 
 550 Kroner. 8 In addition to this exemption there is a 
 series of special graduated abatements for each class. 
 For example in the fourth class : 
 
 Incomes of 350 to 450 Kr. have an abatement of 9/10 
 
 8/10 
 7/10 
 6/10 
 5/10 
 4/10 
 3/10 
 2/10 
 1/10 
 
 The State property and income tax differs but little 
 from the municipal. Instead of eight classes of exemp- 
 
 
 450 
 
 700 
 
 
 
 
 700 
 
 1,000 
 
 
 
 
 1,000 
 
 1,300 
 
 
 
 
 1,300 
 
 1,600 
 
 
 
 
 1,600 
 
 2,000 
 
 
 
 
 2,000 
 
 2,600 
 
 
 
 
 2,600 
 
 3,200 
 
 
 
 
 3,200 
 
 4,000 
 
 
 
 The Norwegian Krone (crown) is equal to 26.8 cents.
 
 1 66 INCOME TAXATION 
 
 tions, however, it provides for four, and the rates are 
 fixed annually by the Storting (Parliament) in accord- 
 ance with an estimate or "proposition" made by the 
 King. 9 These rates, which have been the same for 
 several years, were established for the budgetal period 
 from July 1, 1910, to July 1, 1911, at 
 
 Income tax 
 
 2% on incomes of 1,000 Kr. ($ 268) to 4,000 Kr. 
 3% ' " 4,000 " ( 1,072) " 7,000 " 
 
 4% ' " " 7,000 " ( 1,876) " 10,000 " 
 
 5% ' " over 10,000 " ( 2,680) 
 
 Property tax 0.033 of the total assessed value. 
 
 It should perhaps be explained at this point that all 
 taxable property in Norway is divided into three classes, 
 viz.: 
 
 1. Paste Eiendomme. (Real Estate.) 
 
 2. Formue. (Property or wealth, real and per- 
 sonal.) 
 
 3. Indtaegt. (Income.) 
 
 The first tax, on real estate as such, is left wholly to 
 the local bodies as in Prussia. The property, or wealth 
 tax, as we prefer to call it, is a tax at a very low rate on 
 the total estimated wealth of an individual. This would 
 include personal property which might not be producing 
 any income, such as wheat in storage, money in a bank, 
 outstanding credits, etc. This tax is somewhat similar 
 to the impot complementaire in France, the supplemental 
 tax in Germany and the Allmaenna Bevillning in Sweden. 
 It necessarily involves a second taxation of real property, 
 but at so low a rate that the additional burden is hardly 
 
 9 . See St. prp. Nr. 10 (1910), Om indkomstskat til Statskassen 
 i budgetterminen fra 1 ste juli 1910 til 30te juni 1911 m. v. Finans- og 
 Tolddepartementets indstilling av 23de december 1909.
 
 NORWAY 167 
 
 appreciable. In estimating a person's wealth the capital- 
 ized value of annuities, pensions, etc., which expire with 
 his death are not included. It is a rough estimate at best 
 as is indicated by the provision of the law for "round- 
 ing off" the amounts. If the estimated wealth is less 
 than 5,000 Kroner it is placed at the nearest amount 
 which will divide by 500; if between 5,000 and 20,000 
 Kr. at the nearest amount which will divide by 2,000; if 
 between 20,000 and 150,000 Kr. at the nearest amount 
 which will divide by 5,000; and if over 150,000 Kr. at 
 the nearest amount which will divide by 20,000. While 
 this tax is in no sense an income tax it is closely allied to 
 the income tax as constituting an important adjunct or 
 supplement to it, and the two taxes are commonly spoken 
 of as the "property and income tax." Although the 
 assessed amount of wealth is vastly greater than of in- 
 comes, being in 1908, in the proportion of 1,825,962,933 
 Kr. to 305,367,792 Kr., the amount of the tax collected 
 from incomes is ten- fold greater than that collected by 
 the property or wealth tax. 
 
 The amount of exemption is variable according to 
 the number of persons whom the taxpayer is obliged to 
 support. All persons liable to taxation are divided into 
 classes as follows : 
 
 Class I. Those who have no dependents to support. 
 Companies are included in this class. 
 
 Class II. Those who have from one to three persons 
 to support. 
 
 Class III. Those who have from four to six persons 
 to support. 
 
 Class IV. Those who have seven or more persons to 
 support.
 
 1 68 INCOME TAXATION 
 
 The persons considered as dependent on the taxpayer 
 may be his own or adopted children, parents, brothers 
 and sisters and other relatives and connections by mar- 
 riage but not husband or wife who have reasonable 
 claims for support and are actually supported by him. 
 
 There is a general exemption of 1,000 Kroner ($268) 
 for all incomes, except those of non-residents or ab- 
 sentees, who are entitled to only 400 Kroner, without 
 reference to the number of dependents. 
 
 As in the case of municipalities there is a table of ex- 
 emptions or abatements graduated both as to number of 
 dependents and amount of income. By this table incomes 
 of from 1,000 to 4,000 Kroner are classified in 31 grades, 
 the progression in each instance being 100 Kroner. It 
 will perhaps suffice to give four of these grades being the 
 first, eleventh, twenty-first and thirty-first. 
 
 Amount taxed 
 
 Grade 
 
 Income 
 
 Class 
 
 I. 
 
 Qass II. 
 
 Qass 
 
 III. 
 
 Class 
 
 IV. 
 
 1 
 
 1,000 
 
 Kr. 
 
 400 
 
 Kr. 
 
 220 
 
 Kr. 
 
 120 
 
 Kr. 
 
 60 
 
 Kr. 
 
 11 
 
 2,000 
 
 " 
 
 1,400 
 
 
 
 
 1,000 
 
 " 
 
 800 
 
 tt 
 
 620 
 
 " 
 
 21 
 
 3,000 
 
 " 
 
 2,400 
 
 ** 
 
 
 2,000 
 
 " 
 
 1,600 
 
 H 
 
 1,400 
 
 " 
 
 31 
 
 4,000 
 
 " 
 
 3,400 
 
 " 
 
 
 3,000 
 
 if 
 
 2,600 
 
 " 
 
 2,200 
 
 " 
 
 For incomes above 4,000 Kr. there is a uniform 
 abatement of 600 Kr. in class I, 1,000 Kr. in class II, 
 1,400 Kr. in class III and 1,800 Kr. in class IV. 10 
 
 10 . An analysis of the whole table will show that there is a uni- 
 form deduction of 600 Kr. in each grade of Class I ; in Class II the 
 deductions increase after the first by 20 Kr. for each grade until 
 they reach 1,000 Kr. (for an income of 2,000 Kr.) from which point 
 they are uniform at that sum; in Class III the deductions increase 
 40 Kr. for each 100 Kr. of income until they reach 1,400 Kr. (at 
 3,000 Kr. of income) from which point they are not changed; in 
 Class IV the deductions increase at the rate of 40 Kr. for each grade 
 after the first, for 10 grades, and then in steps of 20 Kr. until 1,800 Kr. 
 is reached for an income of 4,000 Kr.
 
 NORWAY 169 
 
 In assessing the property tax the smallest estimated 
 value considered is 1,000 Kr. and the tax is levied uni- 
 formly, that is, without graduation or reference to classes. 
 
 There is no distinction made between "earned" and 
 "unearned incomes," and incomes are not collected at the 
 source except in the case of companies. 
 
 As illustrating the method of computing the tax the 
 following concrete instance may be of assistance : 
 
 A man having a family of wife and four children 
 owns property as follows : 
 
 Residence valued at 10,000 Kr. 
 
 Cash in bank 1,000 
 
 Money due from others 4,000 
 
 Other personal property 9,000 
 
 Total 24,000 
 
 and has indebtedness to amount of 2,000 
 
 and an annual income of 16,400 
 
 In computing his State property tax his debts would 
 first be deducted leaving 22,000 Kr. and, as 20,000 would 
 be the nearest number divisible by 5,000, his assessment 
 would be fixed at 20,000 Kr. Applying the rate of 1/3 
 of a Kroner in a thousand his property tax would amount 
 to 6.66 Kroner. 
 
 As an income taxpayer he would belong in Class III 
 and be entitled to a deduction of 1,400 Kr., which would 
 leave his taxable income 15,000 Kr. ($4,020). 
 
 This would be taxed : 
 
 On the first 4,000 Kr. 2% 80 Kr. 
 
 " " next 3,000 " 3% 90 " 
 
 " " " 3,000 " 4% 120 ' 
 
 " remaining 5,000 " 5% 250 " 
 
 Total income tax 540 " ($144.72) 
 
 The administration of the tax presents some peculiar 
 features. No returns are required of the taxpayers and 
 they cannot be compelled to testify as to the amount of
 
 I7O INCOME TAXATION 
 
 their incomes. The assessments are made by local boards 
 from such information as they can obtain, and are then 
 published. A period of four weeks is allowed within 
 which appeals may be taken. In cases where the method 
 of taxing a whole district may be questioned as to its 
 legality, or it is considered that certain districts are taxed 
 too high or too low, provision is made for appeals by the 
 government, municipal councils, or, in some instances, 
 by bodies of at least five taxpayers, to a county commit- 
 tee (corresponding somewhat to county boards of 
 equalization in the United States), and from such com- 
 mittee again to a state committee or board of taxation 
 chosen partly by the King and partly by Parliament. 
 The cost of collecting the tax, so far as the State is con- 
 cerned, amounts to about 50,000 Kr. ($13,400), or about 
 7/10 of one per cent of the amount collected. 11 
 
 The financial results are no doubt much below what 
 they would be with stricter requirements as to the re- 
 turns. Nevertheless the yield of the tax has steadily in- 
 creased. The local municipal income tax proper has in- 
 creased from 9,220,878 Kroner in 1885 to 26,845,702 
 Kroner in 1908, and the State income tax from 5,421,956 
 Kroner in 1903-4 to 7,296,620 Kroner ($1,955,494) in 
 1908-9. 12 
 
 The increase in the State tax is partly due to a super- 
 tax of ten per cent which has been levied by the govern- 
 
 11 . See Reports from His Majesty's Representatives Abroad re- 
 specting Graduated Income Taxes in Foreign States (1905) p. 125. 
 
 1Z . Statistisk Aarbok for Kongeriket Norge, 1909, p. 143.
 
 NORWAY I 7 I 
 
 ment for the last few years. For example, in 1908-9 the 
 total state income and property taxes were : 
 
 Tax on property 608,753 Kr. 
 
 " Income 6,027,584 " 
 
 6,636,337 ' 
 Ten per cent super-tax 660,283 " 
 
 Total 7,296,620 " 
 
 The estimated net yield of the tax for the fiscal year 
 1910-11 is 7,150,000 Kroner, which includes the 10 per 
 cent super-tax. 13 The total state revenues amount to 
 144,588,364 Kroner, 14 of which customs produce more 
 than one-third. The state income tax amounts to 5 per 
 cent of the total revenue. 
 
 As to the Communal taxes, the statistics for 1908 
 show that the total valuation of "property" (movable 
 
 wealth) was 2,353,223,000 Kr. 
 
 and of incomes 535,195,000 " 
 
 The amount of taxes realized was : 
 
 From property 4,820,645 Kr. 
 
 " income 26,845,702 " 
 
 The number of taxpayers was 690,432 or 29.34% of 
 the total population (2,352,786). 
 
 For the year 1909 the total taxes levied were : 
 
 On real estate 7,376,603 Kr. 
 
 " "movable wealth" 5,106,267 " 
 
 " Income . ..27,921,884 " 
 
 Total 40,404,754 
 
 13 . See page 5 of document cited in Note 9 ante. 
 
 14 . Statistisk Aarbok for Kongeriket Norge, 1909, p. 157.
 
 172 INCOME TAXATION 
 
 It will be seen that the income tax proper (27,921,- 
 884 Kr. ($7,483,065) yielded 69 % of the total amount 
 raised by the three taxes. 
 
 The number of taxpayers was : 
 
 In the cities 196,757 
 
 In the country 510,782 
 
 Total 707,539 
 
 The proportion of city taxpayers is relatively small, 
 being only 27.81 per cent. 
 
 PANAMA 
 
 There is a partial income tax in Panama proportioned 
 to receipts from personal exertion. The proceeds of the 
 tax are devoted to public works. Real estate is also 
 assessed upon a slightly graduated scale with general 
 reference to the amount of annual income which it pro- 
 duces. This system is based upon Law No. 88 of 1904, 
 as amplified and amended by Law No. 32 of 1909. As 
 the provisions of the law are brief and explicit it has 
 seemed best to give them in full : 
 
 The National Assembly of Panama decrees : 
 
 Chapter I. 
 
 Taxes on real estate and movable property. 
 
 Article i. The taxes mentioned in this chapter are im- 
 posed upon real estate and movable property, whatsoever 
 may be the form in which it is found, in conformity with the 
 following rates: 
 
 A. Five per cent, on the probable annual income of city 
 property. 
 
 B. Lots within the limits of towns shall be divided into 
 three classes, which shall pay annually per square meter as 
 follows :
 
 PANAMA 173 
 
 In the cities of Panama, Colon, and Bocas del Toro: 
 The first class at the rate of B. [Balboa] 0.04; the second 
 class, at the rate of B. 0.02; the third class, at the rate of B. 
 o.oi. 
 
 Ordinance No. 51 (July 8, 1908) respecting subsidiary 
 personal work: 
 
 Chapter i. General Provisions. 
 
 Article I. Personal service is a contribution imposed 
 on all male residents of each municipal district between the 
 ages of 1 8 and 70. 
 
 Article 2. This contribution is of special application, 
 and shall be entirely applied to the improvement of means 
 of communication, to public works of the respective districts, 
 and to the postoffice service, the latter in those districts 
 where it is indispensable. 
 
 Article 3. The municipal corporations can not include 
 in their budget of revenue a less sum for public works of the 
 respective district than that noted in the budget of revenue 
 as a product in money of the subsidiary contribution. 
 
 Chapter 2. On the Formation of the Lists. 
 
 Article 4. In each municipal district there shall be "a 
 council of personal subsidiary work," whose duty it shall be 
 to form a list of those obliged to render their personal ser- 
 vice in accordance with article I. 
 
 Article 5. This council shall be composed of the fol- 
 lowing functionaries : The alcalde, who shall preside ; the 
 treasurer; and the municipal representative. 
 
 The secretary of the alcalde shall act as secretary. 
 
 Article 7. For the qualification of the persons liable to 
 pay the personal subsidiary tax, the council shall take into 
 account that those pertaining to the first class are those who 
 can contribute ten days' work per year. To the second 
 class those who can contribute eight. To the third 
 class those who can contribute six. To the fourth class 
 those who can contribute four. To the fifth class those who 
 can contribute three. 
 
 Article 8. Those pertaining to the first class are the 
 owners of haciendas, fincas, merchants, and, in general, all 
 those who have an income or annual return from their work 
 or occupation of $3,000. To the second class the owners of 
 haciendas or fincas, merchants, and, in general, all those 
 who have an annual income or return from their work or
 
 174 INCOME TAXATION 
 
 occupation of from $1,800 to $3,000. To the third class, 
 those whose work or industry produces from $1,000 to 
 $1,800. To the fourth class, those whose work, business, or 
 industry produces $500 or more and under $1,000, and to 
 the fifth class those whose industry, occupation, or business 
 produces less than $500 per year. 
 
 Article 9. Those of the first, second and third classes 
 are under the obligation to pay for their services in money ; 
 those of the fourth and fifth classes in work, but they may 
 also pay in money if they so desire. 15 
 
 Stated in the form of a table and reversing the order 
 of the classes it appears that persons with incomes of 
 
 less than $ 500 (class 5) pay equivalent of 3 days' work in cash or 
 
 labor ; 
 of 500 to $1,000 (class 4) pay equivalent of 4 days' work in cash or 
 
 labor ; 
 
 of $1,000 to $1,800 (class 3) pay equivalent of 6 days' work in cash; 
 of $1,800 to $3,000 (class 2) pay equivalent of 8 days' work in cash; 
 and over $3,000 (class 1) pay equivalent of 10 days' work in cash. 
 
 While the law may appear somewhat crude at first 
 glance it has distinct advantages in its simplicity, its gen- 
 eral application to all classes and its direct relation to 
 earning ability. In view of the fact that there is prob- 
 ably no other country where so large a proportion of the 
 population receive wages and salaries, it is rather sur- 
 prising that no provision for collecting that part of the 
 tax payable in cash at the source has been made. 
 
 THE PHILIPPINES 
 
 In 1878, while the islands were under Spanish 
 dominion, a tax was levied upon all incomes except those 
 derived from agriculture. This tax was divided into two 
 parts, one of which was quite similar to the Spanish sys- 
 
 15 . See Consular Report in Congressional Record, Vol. 45 
 (Jan. 27, 1910) p. 1116.
 
 THE PHILIPPINES 175 
 
 tern of taxing profits and was known as the contribution 
 dirccta sobre la industria, cl commercio, las professiones 
 y las artes. This tax was imposed by a royal decree of 
 June 19, 1890, and was designed to reach incomes from 
 salaries, dividends, investments and profits of business 
 generally. The rate was half a tithe or five per cent upon 
 the net income and some relief was afforded to the lower 
 grades by exemptions and abatements. This tax has 
 come to be known as the "industria" or "industrial tax," 
 although the term is somewhat misleading. 
 
 The other tax was designed to reach the income from 
 urban real estate. It was known as the contribution 
 directa sobre la propriedad urbana, or more commonly, 
 as the "urbana' tax. The rate for this tax was five per 
 cent upon the net rental value of all houses or buildings, 
 with a deduction for repairs, which was originally forty 
 per cent, but was eventually reduced to twenty-five per 
 cent. There was also a super-tax of five per cent upon 
 both taxes which was intended to cover the cost of col- 
 lection. 16 
 
 The place which these taxes filled in the budget may 
 be seen from the statistics for the years 1894-5 which 
 show that the total revenues were $13,579,000; the 
 amount raised by direct taxation was $6,659,450, of 
 which sum the "industria" tax contributed $1,323,000 
 and the "urbana" tax $110,400. 17 
 
 The Internal Revenue Law of 1904, promulgated by 
 the Philippine Commission July 2, 1904, contained the 
 following clause : 
 
 16 . Plehn, C. C. Taxation in the Philippines, in Political Sci- 
 ence Quarterly, Vol. 16, No. 4, (Dec., 1901) pp. 701-711, and Vol. 17, 
 No. 1, p. 147. 
 
 17 . Report of Philippine Commission transmitted to Congress 
 Feb. 2, 1900, p. 80.
 
 176 INCOME TAXATION 
 
 All industrial taxes and stamp taxes imposed under the 
 Spanish regime and heretofore in force in these islands are 
 hereby repealed, except as otherwise specially provided in 
 this act, and the taxes imposed by this act are substituted in 
 lieu thereof. 18 
 
 The only part of the Industrie, tax which was retained 
 related to business licenses and even this was materially 
 changed. Under the old law merchants and manu- 
 facturers paid quarterly in advance certain specific, 
 arbitrary amounts which were the same for all persons 
 engaged in the same business, regardless of the amount 
 of business transacted. Neither the value of the mer- 
 chant's stock, nor the extent of his business, nor the 
 amount of his profits were used as bases for determining 
 his assessment. Under the new law a tax is levied at the 
 end of each quarter of one peso 19 for each 300 pesos of 
 sales during that period 20 and in this manner the amount 
 of the tax is proportioned to the volume of business 
 transacted being practically one-third of one per cent 
 of the gross receipts. 21 
 
 RUSSIA 
 
 While Russia is often mentioned in the list of 
 countries which have no income tax, the statement re- 
 quires some qualification. 
 
 18 . Act No. 83 entitled a General Act for the organization of 
 provincial government in the Philippine Islands, published by auth- 
 ority of the Philippine Commission. Manilla, 1905, Section 146, p. 
 114. 
 
 19 . The peso is equal to 50 cents of American money. 
 
 20 . Hord, John S. (Collector of Internal Revenue in the Philip- 
 pines) Internal Taxation in the Philippines. Johns Hopkins Uni- 
 versity Studies. Vol. 25, (Jan., 1907) p. 7. 
 
 21 . In Porto Rico taxes similar to the industria and urbana 
 were in force until they were supplanted by the United States Rev- 
 enue Act of January 31, 1901, known as the Hollander Bill, which 
 provided for a general property tax, a series of excise taxes and an 
 inheritance tax. Hollander, J H. The Finances of Porto Rico, in 
 Political Science Quarterly, Vol. 16, (Dec.. 1901) p. 554.
 
 RUSSIA 177 
 
 As far back as 1724 classified poll taxes were levied 
 in somewhat the same manner as in England and this 
 ancient tax, which bore some rough relation to income, 
 was not wholly abolished in European Russia until 
 1887. It is still retained in Siberia. At the present 
 time the principal state taxes are those on real estate, 
 corresponding to the American property tax. These 
 taxes, while crude and unjust in many particulars, are a 
 distinct improvement upon the "collective liability" plan 
 by which the amount of tax needed was levied upon the 
 entire rural commune collectively and arrears were 
 exacted from all or any of the inhabitants of the 
 village indiscriminately. By a law of 1893, pro- 
 vision was made for valuing land, not by its actual 
 market value, as had been the custom, but accord- 
 ing to the average net income which it produced or could 
 be made to produce. The average rate on income of 
 landed property, or land valued according to its revenue, 
 is about 4 per cent. 
 
 There is also a "ticket" or license tax, levied osten- 
 sibly according to the number of shops belonging to each 
 trader, but in fact, with some reference to capital and in- 
 come. This is in addition to the "patente" or license 
 system, borrowed from France in 1824, which levies a 
 fixed sum on each occupation regardless of the amount 
 of capital invested. As it was realized that these taxes 
 were very unequal in their application, a third or supple- 
 mentary tax, was established in 1885, during the financial 
 administration of M. Boongue, which provided : 
 
 1. A separate tax of 5 per cent on the net profits of 
 various share companies and joint-stock associations 
 practically a corporation income tax.
 
 178 INCOME TAXATION 
 
 2. A levy every three years on all other commer- 
 cial and industrial undertakings. This tax is laid annual- 
 ly upon the various districts and taxpayers on the basis 
 of estimated profits. 
 
 These taxes on trade and industry amounted in 1895, 
 to about 40 per cent of the whole amount raised by direct 
 taxation. 22 
 
 There is still another tax, sometimes called the "tax 
 on capital;" but in reality it is a tax of 5% upon the in- 
 come or interest of capital loaned or invested in interest- 
 bearing securities. In the estimates for 1908 the direct 
 taxes were classified as 
 
 Land tax 61,870,259 Rubles ($31,863,183) 
 
 Trade and industry taxes 99,208,000 " ( 51,092,120) 
 
 5% on income of capital 21,745,000 " ( 11,198,675) 
 
 Total 182,823,259 
 
 The direct taxes constitute something less than 
 of the total revenues. 
 
 Finland. 2 * An income tax was voted by the Finnish 
 Diet in 1863-4 and remained in force for about twenty 
 years. For several years it was considered as a per- 
 manent tax; but it did not prove so productive as had 
 been anticipated and was therefore changed to a tem- 
 porary tax to be levied annually, if needed. It was 
 
 22 . Statesman's Handbook for Russia (edited by the Chancery 
 of the Committee of Ministers) Vol. 1, p. 169. 
 
 23 . The Statesman's Year Book, 1909, p. 1159. (The ruble = 
 51.5 cents.) 
 
 24 . The Grand Duchy of Finland was ceded to the Emperor of 
 Russia by the Treaty of Frederikshamn, September 17, 1809. By 
 special grant of Alexander I, (renewed by his successors) the Swe- 
 dish Constitution which had been in force since 1772 was preserved, 
 though it has been considerably amended and "reformed" at vari- 
 ous times. Population (1906) 2,933,856. Area 125,784 sq. m. States- 
 man's Year Book 1909, p. 1185.
 
 FINLAND 179 
 
 dropped as a state tax in 1895, although still used by 
 cities and communes for local purposes. 
 
 As originally adopted the law exempted the first 500 
 Markkaa 25 ($96.50) ; but, as amounts under 50 Markkaa 
 were not considered and those above 50 and up to 100 
 were reckoned as 100, the exemption practically amounted 
 in many cases to 550 Markkaa. 
 
 At a later period the exemption was limited to in- 
 comes of less than 2,500 Markkaa ($482.50). The rates 
 adopted were: 
 
 On incomes of 500 to 2,500 Markkaa (450 Markkaa exempt) 4/5 
 
 of 1% 
 
 On incomes of 2,500 to 5,000 Markkaa (no exemption) 4/5 of 1% 
 On incomes of 5,000 to 10,000 Markkaa (no exemption) 1% 
 Exceeding 10,000 Markka (no exemption) 1 1/5% 
 
 The yield of the tax proved unsatisfactory and the 
 reasons for this result were evidently : 
 
 1st : That the greater portion of the population had 
 incomes of less than 500 Markkaa and large fortunes 
 were rare. 
 
 2nd : That the rate was very low ; and 
 
 3rd : That the administration of the tax was ex- 
 tremely lax. 
 
 In spite of those drawbacks, however, the amount 
 collected increased from 425,630 Markkaa ($81,146) in 
 1868 to 860,356 Markkaa ($166,048) in 1881, 28 and 
 there appears to be a growing public sentiment in favor 
 of a State income tax along more modern lines. 
 
 25 . The Finnish Markka (plural Markkaa) is a silver coin equi- 
 valent to the French franc, or 19.3 cents in American money. It is 
 divided into 100 penni which are therefore of the same value as 
 the French centimes. It is sometimes called Mark, but should not 
 be confused with the German Mark, which is equivalent to 23 4/5 
 cents. 
 
 26 . Ignatius, K. E. F. Bidrag till Finlands Officiela Statistik, 4, 
 Oeversigt af inkomstbevillningens resultater, ar 1881.
 
 ISO INCOME TAXATION 
 
 In addition to the income tax there was the "Cen- 
 tonal," or one per cent tax on the salaries and pensions of 
 public officials. This tax is still in force. It produces 
 about 100,000 Markkaa each year which is applied to the 
 military fund. There is also a capitation tax known as 
 the "Mantalspenningar" which is levied at the rate of two 
 Markkaa for each man and one Markka for each woman 
 between the ages of 16 and 64 years. It yields annually 
 about 2,000,000 Markkaa ( $386,000 ). 27 
 
 27 '. Fredericksen, N. C. Finland, its Public and Private Economy 
 (1902), p. 263.
 
 CHAPTER X. 
 
 ST. VINCENT, SEYSCHELLES, SPAIN, 
 SWEDEN, SWITZERLAND. 
 
 ST. VINCENT. 
 
 The present law, which went into effect in 1905, is a 
 revision of the previous laws without any change in rates. 
 The first law was the "Income and Land Tax Ordi- 
 nances," 1887 to 1897, which was followed by the In- 
 come Tax Ordinances of 1902 and 1903. The rates are 
 as follows: 
 
 Income 50 to 100 ($ 486.65) 20 s. per hundred , or 1 % 
 
 100 " 200 ( 973.00) 30 s. " " " " 1.5 " 
 
 200 " 300 ( .1,460.00) 40 s. " " " " 2 " 
 
 over 300 60 s. " " " " 3 " 
 
 There does not appear to be any exemption except 
 that incomes under 50 ($243.32) are not taxed. The 
 provisions for the administration of the tax are quite 
 complete. Taxpayers are expected to make returns of 
 their income and the amount of income shown by the re- 
 turn cannot be increased by the assessor without notice. 
 A peculiar feature of the law is the requirement that the 
 Governor shall cause the income tax rolls to be published 
 in the Official Gazette and copies to be posted in the police 
 stations and elsewhere.
 
 1 82 INCOME TAXATION 
 
 The yield of the tax in 1904 was 438 11 s. 3 d. and 
 the average for the years 1897 to 1904, 525 ($2,554.65). 
 The number of taxpayers for 1904 was 217, or 0.4 per 
 cent of the total population. 
 
 SEYCHELLES 
 
 Under Ordinance No. 16 of 1900, the following rates 
 are levied upon all persons falling within 4 classes, to- 
 wit: 
 
 Class I. Owners of immovable Rate 
 
 property in the Town of 
 
 Victoria. 4% on the annual locative 
 
 (rental) value of such prop- 
 erty. 
 
 Class II. Owners of immovable 
 property outside the Town 
 
 of Victoria. 3% on the annual locative value 
 
 of such property. 
 
 Class III. Persons deriving an 
 annual income of not less 
 than 16. V/ 2 % 
 
 Class IV. Every male between 
 the ages of 15 and 55 (school 
 boys excepted) not included 
 in any of the previous 
 classes. 3 s. per head 
 
 There are no exemptions and the tax is computed 
 upon gross income except that planters may deduct cost 
 of labor, merchants may deduct cost price of goods, and 
 contractors and other employers of labor may deduct cost 
 of labor and material. The tax is assessed upon returns 
 by the individual taxpayers except in the case of Govern- 
 ment officers whose tax is deducted from their salaries. 
 Ministers of religion and certain police officials are ex- 
 empt from the tax. There is a surcharge of 10% upon 
 ratable persons who make no returns.
 
 SPAIN 183 
 
 The capitation tax of about seventy-five cents per 
 head on all persons who do not pay income tax has much 
 to be said in its favor and it is rather surprising that the 
 only country to adopt this plan should be these remote 
 and almost unknown islands. It is due to this tax that 
 7,800 persons, or 40 per cent of the population, are in- 
 come taxpayers, which is a percentage more than double 
 the usual proportion. The yield of the tax levied upon 
 the 4 classes above described for the year 1904 was be- 
 tween 50,000 Rupees ($16,220) and 60,000 Rupees 
 ($19,464), or 15 per cent of the total revenues of the 
 colony for the same year. 1 
 
 SPAIN. 
 
 There is no income tax in Spain in the sense of a tax 
 proportioned to the taxpayers' whole income, regardless 
 of source. Indeed, such a very competent authority as 
 the Director General of Taxation in Spain has assured 
 us that there is no income tax of any kind in that country. 
 But this appears to be a question of nomenclature, as the 
 tax on profits of movable wealth, or personal property, 
 (contribution sobre ntilidades de la riqueza mobiliaria) 
 has been treated by many writers as a partial or limited 
 income tax, and it certainly has all the characteristics of 
 a highly differentiated income tax so far as it goes. 
 
 The law of March 27, 1902, 2 together with the regula- 
 tions of September 16, 1906, provides for three series of 
 
 1 . Graduated Income Taxes in the (English) Colonies. Co- 
 lonial Office, 1905. No. 196. 
 
 2 . See Gaceta Official de Madrid, March 28, 1900, where it is 
 published in full.
 
 184 INCOME TAXATION 
 
 tariffs on profits first, of labor (utilidades procedentes 
 del trabajo personal} ; second, of capital (utilidades pro- 
 cedentes del capital) ; and third, of labor and capital com- 
 bined (utilidades procedentes del trabajo juntamente con 
 el capital). The rates vary from one-half of one per 
 cent on life insurance premiums to 20 per cent on numer- 
 ous items and are frequently progressive within a certain 
 class. For example, in taxing profits of personal exer- 
 tion, certain bank officials and managers of property or 
 estates are taxed 10 per cent, while clerks and employees 
 of banks, companies, societies and commercial houses, as 
 also insurance agents, actors, bull-fighters, acrobats and 
 conjurors, pay five per cent. 
 
 Day laborers and persons receiving salaries of less 
 than 1,500 pesetas ($289.50) are exempt. 
 
 Salaries of state officials en disponibilite and pen- 
 sioners of states, provinces or municipalities, are taxed 
 according to the following scale : 
 
 Incomes not exceeding 1,500 pesetas pay 15% 
 
 " above 1,500 and not exceeding 2,500 16% 
 
 " above 2,500 and not exceeding 5,000 18% 
 
 exceeding 5,000 20% 
 
 Salaries of persons in the civil service of the State 
 are graded so that persons receiving incomes : 
 
 not exceeding 1,500 pesetas pay 10% 
 
 above 1,500 and not exceeding 2,500 pay 12% 
 
 " 2,500 " " " 5,000 " 14% 
 
 5,000 " " " 7,500 " 16% 
 
 7,500 " " " 12,500 " 18% 
 
 " 12,500 20% 
 
 Military officers pay rates varying from 5 per cent for 
 captains and subalterns to 18 per cent for generals.
 
 SPAIN 185 
 
 Employees and officials of provincial councils and 
 municipalities pay 6 per cent on salaries not exceeding 
 1,000 pesetas ($193). 
 
 12% on salaries of 1,000 to 5,000 and 
 16% " " over 5,000. 
 In the tariff which includes profits from capital, 
 
 1. The interest on Spanish securities (with the ex- 
 ception of 
 
 a) the 5% Consolidated debt to the United States, 
 
 b) the 4% perpetual debt to Denmark, 
 
 c) shares of external 4% debt owned by foreigners) 
 is taxed at 20%. Other rates are, 
 
 2. On dividends of banks of issue (i. e., Bank of 
 Spain 5 per cent. 
 
 3. On dividends of transportation and other com- 
 panies (except mining), provincial and municipal loans, 
 interest on mortgages, 3 per cent. 
 
 4. Mining companies, 2 per cent. 
 
 The rates for the third tariff, representing combina- 
 tion of labor and capital, are shown by the following 
 table : 
 
 1. Profits of Banks 15% 
 
 2. ." " companies (other than mining and 
 
 railway) 12% 
 
 3. " transportation companies 7% 
 
 4. " societies for production and con- 
 
 sumption (except those of work- 
 ingmen), including co-operative 
 credit associations 6% 
 
 5. Premiums on fire insurance 2% 
 
 6. Premius on life and accident insurance 0.5%
 
 1 86 INCOME TAXATION 
 
 By the terms of the budget of 1905 incomes of pri- 
 vate individuals under 1,500 pesetas and salaries of per- 
 sons in the employ of the State under 1,000 pesetas were 
 exempt. 
 
 Companies, etc., deducting income at source are 
 allowed one per cent for making the collection. No 
 statistics are available to show the cost of collection. 
 
 There is, in addition to the tax on profits above de- 
 scribed, a "tax on the exercise of industrial, commercial 
 and professional enterprises" commonly called the in- 
 dustry or industrial tax. This corresponds somewhat to 
 the occupation or business license tax in the Southern 
 states of the American Union. There are five principal 
 "tariffs" which have a great number of divisions and sub- 
 divisions. The third tariff, for example, has 418 head- 
 ings with 643 specific rates. 
 
 The most notable features of the Spanish tax on 
 profits, or income, are, first, the great length to which the 
 principle of differentiation is carried and, second, the fact 
 that practically all the incomes reached are such as can 
 be and are collected at the source. 
 
 As in Italy, there is no attempt to reach the income 
 from real estate, it being considered that the direct land 
 tax is a more efficient method. In spite of the large ex- 
 tent to which income is collected at the source it is said 
 that there is a great amount of fraud and evasion. 3 
 
 Mr. E. Hicks Beach, third Secretary to the British 
 Embassy, has prepared a tabular view of the Spanish 
 system, a portion of which (somewhat condensed) is 
 quoted to show the general outlines of the scheme :* 
 
 3 . Vidal. L'impot sur le revenu. Revue Internationale du 
 Commerce de 1'Industrie et de la Banque. Sept., 1904, p. 552. 
 
 4 . Reports from His Majesty's Representatives Abroad respect- 
 ing graduated income taxes in Foreign States, (August, 1905) p. 137.
 
 SPAIN 
 
 I8 7 
 
 Source of Income Principle AsSeSSrae "| ystem 
 
 Rate 
 
 
 (a) Indirect 
 
 Per Cent 
 
 
 earnings 
 
 
 
 'Differentiation 
 (in favour of 
 direct earn- 
 ings without 
 
 e.g., Direc- 
 tors, etc., 
 of Banks 
 and Com- 
 
 
 
 regard to 
 
 panies 
 
 10 
 
 
 Tariff I: 
 
 facility of col- 
 lection) 
 
 (b) Direct earn- 
 ings e.g., 
 
 
 Earnings. 
 
 
 Agents, and 
 employees, 
 
 5 
 
 
 
 (c) "Passive" 
 
 
 
 Differentiation 
 
 e.g., Pen- 
 
 
 
 combined 
 
 sions, &c.. . , 
 
 15 to 20 
 
 
 with gradua- 
 
 (d) "Active" 
 
 
 
 tion. 
 
 official 
 
 
 
 salaries 
 
 10 to 20 
 
 
 r (a) State 
 
 
 
 'Differentiation 
 
 securities. . . 
 
 20 
 
 Tariff II: 
 
 (the rate rises 
 
 (b) Bank shares. . 
 
 5 
 
 Interest on 
 Investments. 
 
 in proportion 
 to the facili- 
 ties of collec- 
 
 (c) Business, 
 municipal 
 
 
 
 tion at source) 
 
 loans, rail- 
 
 
 
 ways, mort- 
 
 
 gages, &c . . . 
 
 3 
 
 'Differentiation 
 
 "(a) Banks 
 
 15 
 
 
 
 (the rate rises 
 
 (b) Limited 
 
 
 
 in proportion 
 
 Companies. . 
 
 12 
 
 Tariff III: 
 
 to the facility 
 of collection 
 
 (c) Railways 
 and canals. . 
 
 7 
 
 Interest and . 
 earnings com- 
 bined. 
 
 at source, and . 
 in inverse 
 proportion to 
 
 (d) Co-operative 
 Associa- 
 tions 
 
 6 
 
 
 the public 
 benefit accru- 
 
 (e) Insurance 
 
 
 
 ing from the 
 
 property .... 
 
 2 
 
 
 .. enterprise) 
 
 personal . . . 
 
 
 As to the financial results of the system, it would seem 
 that the proportion of tax collected from earnings by per- 
 sonal exertion is much lower than in other countries. For
 
 l88 INCOME TAXATION 
 
 example, in 1903, the amount of income returned from 
 earnings was only one twenty-fourth of that from prop- 
 erty, and property and personal exertion combined. The 
 amount of tax collected for 1903 was $18,426,345. In 
 the budget for 1908 the tax represented 134,000,000 
 pesetas ($25,862,000) in a total estimated income of 
 1,040,000,000 pesetas. The proportion of the tax was 
 therefore 12.88 per cent of the whole national income. 5 
 
 SWEDEN 
 
 A combined property and income tax was adopted in 
 Sweden in 1897, but the present income tax proper dates 
 from July 21, 1902. By the provisions of the first law, 
 which is usually called the "General Supply" (Allmaenna 
 Bevillning), real estate was taxed upon its value as deter- 
 mined by assessments made every five years, and certain 
 classes of income, such as dividends on investments in 
 public companies, were not taxed. The rate of this tax 
 is usually one per cent and it is made slightly progressive 
 by abatements on smaller incomes as follows : Incomes 
 below 500 Kronor 6 ($134) are exempt. For incomes 
 between 500 and 1,200 Kr. ($321.60) there is an abate- 
 ment of 450 Kr., which would have the effect to reduce 
 the rate on unabated income to 1/10 of 1% for 500 Kr. 
 and 0.54% for 1,200 Kr. There is also an abatement of 
 300 Kr. for incomes between 1,200 and 1,800 Kr. The 
 exemption and the abatements may be increased not to 
 exceed 200 Kr. in cities where house rent is very high. 
 
 5 . Consular Report in Congressional Record, Vol. 45, (Jan. 27, 
 1910) p. 1115. 
 
 6 . The Swedish krona (pi. kronor) is equal to 26.8 cents of 
 American money. It is divided into 100 oere.
 
 SWEDEN 189 
 
 The income tax law of 1902, as amended in 1907 and 
 1908, does not supplant any portion of the former law, 
 but is strictly supplemental to it. It is intended to reach 
 all forms of income, including dividends from companies 
 and revenues of real estate. The amount of income from 
 real estate, however, is arbitrarily fixed at 6 per cent of 
 the assessed valuation for agricultural land and 5 per cent 
 for other land. 
 
 The real estate valuations used are those obtained for 
 the "general supply" law, with the difference that the 
 later law permits the deduction of mortgage incum- 
 brances. As illustrating the working of the two laws 
 in regard to real estate the case may be taken of a 
 man who owns a farm which has been assessed for 
 100,000 Kr. ($26,800). Under the "general supply" law 
 he would pay 6 oere for every 100 Kr. of assessed value, 
 or 60 Kr. ($16.08). In the case of the income tax, his 
 income from the land would be assumed to be 6 per cent 
 of 100,000 Kr. or 6,000 Kr., which, at one per cent, 
 would yield a tax of 60 Kr. His total tax under the two 
 laws would therefore be 60+60=120 Kr. ($32.16). 
 
 The most notable feature of the Swedish income tax 
 law is the finely graded scale of progression which has 
 been secured wholly by means of abatements and addi- 
 tions, while preserving a uniform rate of tax. The numer- 
 ous advantages of such a plan, as well as its scientific 
 justification, are at once apparent. With a uniform rate, 
 determinable annually, the task of adapting the tax to 
 the fiscal needs of the Kingdom is rendered very simple. 
 Not only can the yield of the tax be increased or 
 diminished by a slight variation in the rate, but the 
 amount of such increase or diminution can be estimated 
 in advance with approximate accuracy. On the other 
 hand, the curve of progression obtained corresponds very
 
 190 
 
 INCOME TAXATION 
 
 closely with the latest and most approved scientific 
 formulae. The method by which the progression is 
 secured may seem a little complicated at first glance, but 
 it is in accordance with very simple rules. These rules 
 may be summarized as follows : Incomes under 1,000 
 Kr. are exempt. If the income amounts to 1,000 Kr., 
 but is less than 2,000, there is an abatement of 800 Kr. ; 
 if 2,000 Kr. and over, but under 3,000, 600 Kr. is de- 
 ducted and if over 3,000 Kr. and under 4,000, the de- 
 duction is 400 Kr. For incomes from 4,000 Kr. to 
 6,000 Kr. (and practically to 6,100), the one per cent 
 rate applies to the true income without abatement or addi- 
 tion. If the income is more than 6,000 Kr. that portion 
 which exceeds 
 
 6,000 Kr., but not 10,000 Kr. is increased 50% 
 
 100% 
 150% 
 200% 
 250% 
 300% 
 400% 
 
 The application of these rules will result in a table of 
 1,446 grades in which true income advances 100 Kr. for 
 each grade, while the actual percentage of tax to true in- 
 come rises from 2/10 of one per cent at 1,000 Kr. to 4 
 per cent at 145,500 Kr. Above the last mentioned sum 
 the amount of tax is uniformly proportional, being one 
 per cent of four times the income, which is equivalent to 
 a flat four per cent rate. 
 
 The following abbreviated table to which equivalents 
 in American money and actual percentage of tax have 
 been added, will perhaps suffice to show the general plan : 7 
 
 10,000 
 
 
 1 
 
 15,000 ' 
 
 
 15,000 
 
 
 < 
 
 20,000 ' 
 
 
 20,000 
 
 
 ' 
 
 30,000 ' 
 
 
 30,000 
 
 
 
 
 50,000 ' 
 
 
 50,000 
 
 
 < 
 
 80,000 ' 
 
 
 80,000 
 
 
 
 
 
 7 . For the full table, which fills thirteen closely printed pages, 
 see Sjaelfdeklaration, by Bodin and Palmgren. Stockholm, 1909, pp. 
 203-215.
 
 SWEDEN 
 
 191 
 
 True 
 Income 
 Kroner 
 
 Dollars Cts. 
 
 Assumed 
 income to 
 which 1% 
 rate applied 
 
 Percentage 
 of tax to 
 true income 
 
 
 
 Kronor 
 
 
 1,000 
 
 268.00 
 
 200 
 
 .2 
 
 1,100 
 
 294.80 
 
 300 
 
 .27 
 
 1,200 
 
 321.60 
 
 400 
 
 .33 
 
 1,300 
 
 348.40 
 
 500 
 
 .36 
 
 1,400 
 
 375.20 
 
 600 
 
 .43 
 
 1,500 
 
 402.00 
 
 700 
 
 .46 
 
 1,600 
 
 428.80 
 
 800 
 
 .5 
 
 1,700 
 
 455.60 
 
 900 
 
 .53 
 
 1,800 
 
 482.40 
 
 1,000 
 
 .55 
 
 1,900 
 
 509.20 
 
 1,100 
 
 .57 
 
 2,000 
 
 536.00 
 
 1,400 
 
 .7 
 
 2,100 
 
 562.80 
 
 1,500 
 
 .74 
 
 2,200 
 
 589.60 
 
 1,600 
 
 .72 
 
 2,300 
 
 616.40 
 
 1,700 
 
 .74 
 
 2,400 
 
 643.20 
 
 1,800 
 
 .75 
 
 2,500 
 
 670.00 
 
 1,900 
 
 .76 
 
 2,600 
 
 696.80 
 
 2.000 
 
 .77 
 
 2,700 
 
 723.60 
 
 2,100 
 
 .77 
 
 2,800 
 
 760.40 
 
 2.200 
 
 .78 
 
 2,900 
 
 777.20 
 
 2,300 
 
 .79 
 
 3,000 
 
 804.00 
 
 2,600 
 
 .86 
 
 3,100 
 
 830.80 
 
 2,700 
 
 .87 
 
 3,200 
 
 857.60 
 
 2,800 
 
 .87 
 
 3,300 
 
 884.40 
 
 2,900 
 
 .87 
 
 3,400 
 
 911.20 
 
 3,000 
 
 .88 
 
 3,500 
 
 938.00 
 
 3,100 
 
 .88 
 
 3,600 
 
 964.80 
 
 3,200 
 
 .89 
 
 3,700 
 
 991.60 
 
 3,300 
 
 .89 
 
 3,800 
 
 1,018.40 
 
 3,400 
 
 .89 
 
 3,900 
 
 1.045.20 
 
 3,500 
 
 .9 
 
 4,000 
 
 1,072.00 
 
 4,000 
 
 1 
 
 4,100 
 
 1,098.00 
 
 4,100 
 
 1 
 
 4,200 
 
 1,125.60 
 
 4,200 
 
 1 
 
 and so 
 
 on to 
 
 
 
 6,000 
 
 1,608.00 
 
 6,000 
 
 1 
 
 6,100 
 
 1,634.80 
 
 6,100 
 
 1 
 
 6,200 
 
 1,661.60 
 
 6,300 
 
 1.01 
 
 6,300 
 
 1,688.40 
 
 6,400 
 
 1.01 
 
 6,400 
 
 1,715.20 
 
 6,600 
 
 1.03 
 
 6,500 
 
 1,742.00 
 
 6,700 
 
 1.03 
 
 and so 
 
 on to 
 
 
 
 25,000 
 
 6,700.00 
 
 49,500 
 
 1.98 
 
 and 
 
 
 
 
 25,500 
 
 6,834.00 
 
 51,000 
 
 2 
 
 and 
 
 
 
 
 65,500 
 
 17,554.00 
 
 194,500 
 
 3 
 
 and 
 
 
 
 
 145,500 
 
 38,994.00 
 
 582,000 
 
 4
 
 192 INCOME TAXATION 
 
 The method followed in constructing the table may 
 perhaps need some explanation. For example, with an 
 income of 6,100 Kr., there is an excess over 6,000 Kr. 
 of 100 Kr. and 50% of this would be 50 Kr. ; but amounts 
 of less than 100 Kr. are not taken into consideration and 
 therefore the amount taxed is 6,100 Kr. When the in- 
 come is 6,200 Kr. 50% of the 200 Kr. excess would be 
 100 Kr., which, added to 6,200 would make 6,300 Kr. to 
 be taxed. An income of 8,000 Kr., being 2,000 in excess 
 of 6,000 would have 50% of 2,000 or 1,000 Kr. added 
 to it. In beginning a new class the addition is made to 
 the last assumed amount in the preceding class. For ex- 
 ample, 10,000 Kr. of income is taxed as 12,000 and 
 10,100 Kr. is taxed at 12,200 Kr., 100% of the excess 
 over 10,000, i. e., 100+100, being added not to 
 10,000, but to the preceding assumed amount. 
 
 The administration of the tax does not present any 
 unusual features. Declarations of income are required 
 from all persons having an income of 1,000 Kr. or who 
 paid income tax in the preceding year and a failure to 
 make such a declaration works a forfeiture of the right 
 to appeal from the assessment made by the officials. 
 There is no provision for collection of income at the 
 source and no differentiation between "earned" and "un- 
 earned" incomes, nor between persons who have large 
 families and those who have not. 
 
 Prior to 1907 the income of the current year was 
 taken into consideration, but the law was amended so as 
 to require the return to give the income for the preced- 
 ing calendar year. In 1908 another change was made, 
 by which the husband was no longer required to make a 
 return of his wife's income as if it were a part of his own,
 
 SWEDEN 193 
 
 but the wife was to make a declaration of the income re- 
 ceived from her separate estate. 
 
 The results of the two taxes from a financial stand- 
 point may be seen from the following statistics : For 
 the year 1905, the amount of income returned was 
 822,638,000 Kr. which was reduced by sundry exemp- 
 tions to 704,210,000 Kr. ($188,728,280). The assumed 
 income upon which the tax was levied in accordance with 
 the table of rates was 1,268,269,000 Kr. ($339,896,092). 
 Of the total income there was derived 
 
 from capital 6.1% 
 
 " labor, pensions, etc 43.9% 
 
 " capital and labor combined, i. e., com- 
 mercial and industrial enterprises. . .50 % 
 
 The value of the agricultural land taxed under the 
 
 "General Supply" law was 2,601,117,000 Kr. 
 
 and of other real estate 2,974,922,000 " 
 
 being a total of 5,576,039,000 
 
 The income tax proper produced in 1903 the sum of 
 10,586,504 Kr. ($2,837,183). The number of income 
 taxpayers was 194,963, of whom 191,515 were private 
 individuals, 789 public bodies and 2,659 companies and 
 banks. It thus appears that one person in 27.26 of the 
 population (5,221,291 at that time), or 3.6%, paid in- 
 come taxes. According to the budget for 1905, the 
 amount of the income tax was 12,682,694 Kr. ($3,408,- 
 962) and of the property and income tax or "general 
 supply" 10,090,232 Kr. ($2,704,182). 
 
 The estimates for the same taxes in 1907 were, 
 
 Income tax 12,600,000 Kr. 
 
 Property and income tax 10,000,000 " 
 
 Total 22,600,000
 
 194 INCOME TAXATION 
 
 As the total estimated revenue of the Kingdom for 
 the same year was 193,383,000 Kr., the two taxes con- 
 tributed 11% of the whole amount. 
 
 The amount produced by the two taxes in 1908 was 
 23,400,000 Kr. and in 1899, 26,000,000 Kronor. 8 
 
 SWITZERLAND 
 
 The income taxes which have been levied in most of 
 the cantons for more than half a century have taken on 
 so many different forms and are based upon such widely 
 divergent theories that any brief and intelligible sum- 
 mary of them would be impracticable. It is proposed 
 to make only a few general observations regarding them 
 and give an example of the system as seen in one of the 
 leading cantons. 
 
 Perhaps the most notable and distinctive feature of 
 the cantonal taxing system is the extent to which the 
 progressive principle is applied to property as well as to 
 income taxes. Seligman has classified the cantons as 
 follows : 
 
 1. Those which have a proportional property tax, 
 but a progressive income tax. 
 
 2. Those which have a progressive property tax ; and 
 
 3. Those in which the progressive principle is ap- 
 plied to both property and income. 
 
 Most of the cantons also distinguish sharply between 
 earned income (unfundiertes Einkommen), (meaning 
 thereby income not derived from capital), and income 
 from investments, conceding a lower rate to the former. 
 
 8 . Svensk Rikskalendar, 1909.
 
 SWITZERLAND 
 
 '95 
 
 A curious feature of the Swiss system is that a separate 
 progressive rate is often applied to both income and prop- 
 erty and as the rates in both instances are lower on smaller 
 amounts it may happen that a taxpayer with 2,500 francs 
 income from property and 2,500 f ranees from labor will 
 pay less than if he had an income of 5,000 francs either 
 from property or labor. The progression is accom- 
 plished not only by increased rates upon larger amounts, 
 but also in many cases by additions (Zuschlaege) to the 
 higher amounts and abatements (Abzuege} from the 
 lower amounts. 
 
 For example, in the Canton of Aargau, if the amount 
 of taxes which one is required to pay is more than 40 and 
 less than 70 francs he must pay five per cent additional, 
 and if more than 70 and less than 100 francs ten per cent, 
 and so on until those who pay over 500 francs are re- 
 quired to pay a supplemental or "super-tax" of thirty- 
 three per cent. As an instance of the abatements (French, 
 degrevements} , may be cited the income tax of the Can- 
 ton of Zurich which falls upon only 
 
 1/5 of the first 1,500 francs of income 
 2/5 " " next 1,500 " 
 3/5 " " " 3,000 " 
 4/5 " " " 4,000 " 
 while all above 4,000 fr. is reckoned upon the full amount. 
 
 The most common method employed in Switzerland 
 might be described as ad valorem taxation of property 
 combined with a tax upon that part of income which is 
 derived from labor. This system is followed in four- 
 teen cantons, viz. : Zurich, Lucerne, Uri, Obwalden, Zug, 
 Freiburg, Schaffhausen, Appenzell A. Rh., St. Gall,
 
 196 INCOME TAXATION 
 
 Graubuenden, Aargau, Thurgau, Waadt and Neuchatel. 9 
 In four of the cantons Baselstadt, Baselland, Solothtirn 
 and Tessin property is taxed as such upon its value, 
 and all income, whether derived from property or labor, 
 is subject to taxation. The result is that productive prop- 
 erty is reached by both taxes and therefore pays a double 
 tax. In the Canton of Schwyz there is a partial income 
 tax which applies only to annuities and pensions. There 
 are taxes in other cantons which may be said to take the 
 place of income taxes, as in Geneva and Wallis, where 
 there is a tax on industrial capital and on the earnings of 
 all professions connected with science and arts as also of 
 certain trades. 
 
 In regard to the exemptions for the minimum of sub- 
 sistence a variety of methods has been adopted. In sev- 
 eral of the cantons heads of families have higher exemp- 
 tions than single persons and the amount varies accord- 
 ing to the number of children. In some cases the exemp- 
 tion is much larger for incomes from labor than for in- 
 comes from capital. The average exemption on an in- 
 come from labor for an unmarried man in seventeen can- 
 tons appears to be 623 francs ($120). In certain can- 
 
 9 . Perhaps the best example of this method is the canton of 
 Waadt (Vaud) where there are two main bases of taxation: a. for- 
 tunes consisting of personal property and b. income from property 
 and labor. Fortunes are assessed by a progressive scale, the grades 
 being 25,000, 50,000, 100,000, 200,000, 400,000, 800,000 and above 
 800,000 francs for which the rates rise by steps of l /2 per cent from 
 1 per cent to 4 per cent. For incomes the scale is 
 
 1 franc to 1,250 francs 1 % 
 
 1,251 francs 2,500 
 
 2,501 " 5,000 
 
 5,001 " 10,000 
 
 10,001 " 20,000 
 
 20,001 " 40,000 
 
 40^001 " and over 4 % 
 
 See Graduated Taxation in the canton de Vaud by W. B. Duf- 
 field, in Westminster Review, Vol. 144, (Oct., 1895) pp. 401-408. 
 
 .2 % 
 .234% 
 .3 % 
 .354%
 
 SWITZERLAND 
 
 197 
 
 tons, as in Zurich, the exemption applies to all incomes, 
 regardless of their amount; in others it is only available 
 for incomes below a certain sum, and all incomes above 
 that sum are assessed in full. 
 
 The rates are progressive in most of the cantons and 
 in Baselstadt, Schaflhausen, Graubuenden, Lucerne and 
 Zurich the rate for each grade or step in the progression 
 applies only to the income in that grade and not to the 
 income in the preceding grades. 
 
 The differentiation in favor of labor incomes is seen 
 in the fact that the average amount of tax in twenty can- 
 tons on an income of $800 derived from labor would be 
 $15.00; while the average tax on property worth $20,000 
 which at 4% would yield an income of $800, would be 
 $32.00. 
 
 As already intimated it would lead too far to attempt 
 a full description of the methods of taxing incomes in 
 each of the Swiss cantons; but a brief account of the sys- 
 tem adopted in the half-canton of Baselstadt may be of 
 interest. 10 This canton is selected, not because it is in any 
 sense typical, but because the writer resided for some 
 years in Basel, and, having been assessed for income tax, 
 had his attention called to the system then in vogue. 
 
 The tax upon income and earnings (Einkommens- 
 und Erzverbssteuer) in the canton of Baselstadt is levied 
 upon all persons residing in the canton subject to its pro- 
 
 10 . Baselstadt consists of the city of Basel and three small vil- 
 lages on the right bank of the Rhine. Population in 1887-1888, the 
 period to which pur statistics relate, 73,749. Baselstadt should not 
 be confounded with Basselland, the other half-canton. The amount 
 of income tax raised in Baselstadt in 1900 was much larger than in 
 any other canton and constituted nearly one third of the whole 
 amount raised in the Swiss Confederacy. Cf. Reports from His 
 Majesty's Representatives Abroad, etc. (1905) p. 87.
 
 198 INCOME TAXATION 
 
 visions and also on non-residents having property or busi- 
 ness in the canton which yields income. 
 Exempt from the tax are 
 
 1. Single persons whose incomes do not exceed 1,200 
 francs. 
 
 2. Married people who keep house and widowers 
 living with their minor (unerwachsene , literally not 
 grown up) children, providing that the income in either 
 case does not exceed 1,500 francs. 
 
 3. Widows, with minor children, whose income does 
 not exceed 1,800 francs. 
 
 4. Female housemaids and servants who are not 
 members of the households of their employers. 
 
 5. Persons who are public charges. 
 The income tax is reckoned as follows : 
 A fixed tax of 8 francs is payable by 
 
 a) Each person receiving an income of from 1,200 
 to 1,500 francs. 
 
 b) Married people having their own households and 
 widowers living with their minor children, providing 
 that in either case their incomes are from 1,500 to 1,800 
 francs. 
 
 c) Widows supporting minor children and having 
 incomes of between 1,800 and 2,400 francs. 
 
 Taxpayers who do not belong to the above classes 
 are liable to pay 
 
 upon income up to 4,000 francs 1% 
 
 " excess above 4,000 " up to 8,000 francs 2% 
 
 " " 8,000 " " " 12,000 " 3% 
 
 on all above 12,000 " 4%" 
 
 ". This was the law in 1888, but it has been changed so that in 
 1897 the 4% rate applied only to the incomes between 12,000 and 
 16,000 francs and all above 16,000 francs was taxed 5%.
 
 SWITZERLAND 
 
 199 
 
 It is provided that there may be deducted from gross 
 income the interest on borrowed capital, wages to em- 
 ployees and other necessary business expenses including 
 losses of capital during the year. On the other hand 
 taxes, household and similar personal expenses can not 
 be deducted. If a taxpayer owns the house in which he 
 lives the rental value of the house is to be added to his 
 income. 12 In the case of corporations, they were re- 
 quired, by a law of March 13, 1902, to pay a tax of 1 l /2 
 per mille on their paid in capital, ^ per mille on capital 
 not paid in and 1^ per mille on their net profits. 
 
 The municipal income tax of the city of Basel is levied 
 upon every inhabitant over twenty years of age except 
 students, from without the city, female house servants 
 and paupers. Taxpayers are divided by the Tax Com- 
 missioner upon the basis of their average gross income 
 into the following classes i 1 
 
 
 Approximate 
 
 
 
 Income 
 
 equivalent 
 
 Tax (in 
 
 
 Class (in francs) 
 
 in dollars 
 
 francs) 
 
 Percentage 
 
 1. 800 to 1,200 
 
 160 to 240 
 
 6 
 
 .75 to .5 
 
 2. Over 1,200 
 
 1,500 
 
 240 
 
 300 
 
 8 
 
 .66 
 
 .53 
 
 3. 
 
 1,500 
 
 2,200 
 
 300 
 
 440 
 
 12 
 
 .8 
 
 .54 
 
 4. 
 
 2,200 
 
 3,000 
 
 440 
 
 600 
 
 20 
 
 .9 
 
 .66 
 
 5. 
 
 3,000 
 
 4,000 
 
 600 
 
 800 
 
 28 
 
 .93 
 
 .7 
 
 C. 
 
 4,000 
 
 6,000 
 
 800 
 
 1,200 
 
 40 
 
 1. 
 
 .66 
 
 7. 
 
 6,000 
 
 10,000 
 
 1,200 
 
 2.000 
 
 68 
 
 1.13 
 
 .68 
 
 8. 
 
 10,000 
 
 15,000 
 
 2,000 
 
 3,000 
 
 120 
 
 1.2 
 
 .8 
 
 9. 
 
 15,000 
 
 20,000 
 
 3,000 
 
 4.000 
 
 180 
 
 1.2 
 
 .9 
 
 10. 
 
 20,000 
 
 30,000 
 
 4,000 
 
 6.000 
 
 280 
 
 1.4 
 
 .93 
 
 11. 
 
 30,000 
 
 40,000 
 
 6,000 
 
 8,000 
 
 400 
 
 1.33 
 
 1. 
 
 12. 
 
 40,000 
 
 60,000 
 
 8,000 
 
 12.000 
 
 600 
 
 1.5 
 
 1. 
 
 13. 
 
 60,000 
 
 100,000 
 
 12,000 
 
 20,000 
 
 1,000 
 
 1.66 
 
 1. 
 
 14. 
 
 100,000 
 
 150,000 
 
 20,000 
 
 30,000 
 
 1,600 
 
 1.6 
 
 1.06 
 
 15. 
 
 150,000 
 
 200,000 
 
 30,000 
 
 40,000 
 
 2,400 
 
 1.6 
 
 1.2 
 
 16. 
 
 200,000 
 
 40,000 
 
 3,000 
 
 1.5 
 
 12 . Instead of adopting this simple provision, the income tax of 
 1864 in the United States exempted the amount paid for rent of a 
 home, the idea in each case being to place the man who rented a 
 house on an equal footing with the man who owned the house in 
 which he lived. 
 
 13 . For the convenience of our readers we have added to the 
 original table the approximate amounts in American money and 
 have computed the percentages.
 
 2OO INCOME TAXATION 
 
 It will be seen that the above rates are occasionally 
 regressive as between classes, and that in every class the 
 smaller incomes pay a larger per cent than the higher in- 
 comes. The incomes are assessed every four years by a 
 tax commission which in certain cases may employ ex- 
 perts, and retaxation is made to meet certain con- 
 tingencies. The amount of tax is assessed and payable 
 quarterly. It appears from recent statistics that in 1903 
 about 5 per cent of those who paid income tax were in 
 receipt of more than one-half of the total income, and 
 what is quite unusual the bulk of the tax is paid by 
 those having relatively high incomes. In other words, 
 three-fourths of the tax is paid by persons having more 
 than 16,000 francs ($3,200) of income. 14 The three 
 forms of taxation are not exclusive of and supplementary 
 to each other as in most of the other cantons, but overlap 
 in such a manner that it was estimated in 1887, that a 
 fourth of the whole total income of the canton paid three 
 taxes and more than a fifth two taxes. 15 
 
 As to the financial results, little is known as most of 
 the cantons do not preserve or publish statistics as to the 
 amount collected and the number of taxpayers. The re- 
 ceipts from income taxes in eighteen cantons for the year 
 1900 were approximately as follows: 
 
 14 . See Basel's Staatseinnahmen und Steuervertheilung 1888- 
 1903, published by the Statistical Department of the Canton of Basel- 
 stadt in 1905. 
 
 15 . For a very full account of the taxing system of Switzerland 
 in general and the income tax in particular, see Schanz, Die Steuern 
 der Schweiz, in five volumes, 1890. See also Handwoerterbuch der 
 Staatswissenschaften, Band III, 3te Auflage, 1909, p. 753. Income 
 and Property Taxes in Switzerland, by Prof. Gustav Cohn, Political 
 Science Quarterly, Vol. IV, No. 1, p. 37.
 
 SWITZERLAND 2OI 
 
 Appenzell A. Rh 
 
 5,158 francs St. Gall 
 
 Aargau 
 
 44,767 
 
 Schaffhatisen 
 
 Baselland 
 
 27,566 
 
 Solothurn 
 
 Baselstadt 
 
 751,700 
 
 Thurgau 
 
 Berne 
 
 544,549 
 
 Tessin 
 
 Freiburg 
 
 25,870 
 
 Wallis 
 
 Graubuenden 
 
 43,390 
 
 Waadt 
 
 Lucerne 
 
 24,062 
 
 Zurich 
 
 Neuchatel 
 
 68,562 ' Zug 
 
 The total amount as shown above was $2,449,364, 
 while the sum collected from property taxes for the same 
 year was $4,003,205, which would indicate that the in- 
 come tax contributed about 38 per cent of the total 
 amount raised by taxation. 
 
 In the Canton of Zurich, according to Dr. Steiger, 10 
 the taxation of incomes was so severe that, in the year 
 1900, no less than 8,493 taxpayers lodged appeals with 
 the Appellate Commission. The same authority estimated 
 that from 30 to 50 per cent of taxable capital is concealed 
 from the authorities and that the annual loss to the Can- 
 ton, in the years 1870 to 1894, was about $400,000 from 
 this cause alone. 
 
 It is quite common for speakers and writers in the 
 United States to refer to the income tax of the Swiss 
 Republic as a shining example of what great things can 
 be accomplished by such a tax among a free and en- 
 lightened people. But they overlook the fact that the 
 Swiss Republic, as such, levies no income tax; that, of 
 the 25 cantons, five do not have any income tax, twelve 
 have only a partial tax, based chiefly on earnings, and 
 only four have a general income tax. It should be re- 
 membered too that Switzerland has less than one-third 
 the area of the State of Wisconsin, while its population 
 is fifty per cent greater. But, in spite of its compactness, 
 
 16 . Steiger, J. Grundzuege des Finanzhaushaltes der Kantone 
 und der Gemeinden, 2 Teile, Berne, 1903.
 
 2O2 INCOME TAXATION 
 
 which might be thought favorable to uniformity, there is 
 the greatest diversity in the methods by which the tax is 
 administered and, as a result, the whole system is com- 
 plex and confused. No two cantons levy the same rate 
 or apply the same principle of classification. Some ex- 
 empt a minimum of existence and some not; some in- 
 crease the progression by abatements and some by addi- 
 tions or a super-tax; some have high rates and others 
 low; and altogether one finds himself in such a maze of 
 contradictory and conflicting methods that he may well 
 pause before quoting the so-called "Swiss Income Tax" 
 as a model.
 
 CHAPTER XL 
 
 INCOME TAXES IN AMERICAN COLONIES 
 AND STATES. 
 
 INCOME TAXES IN THE COLONIES. 
 
 The beginning of the income tax in America may be 
 found in the so-called "faculty taxes," or perhaps at a 
 still earlier period in certain taxes which were levied on 
 produce. The word faculty was used somewhat in the 
 sense of '"'ability to pay." 1 It is true that income (except 
 in the case of salaries), was not taken to be the sole index 
 of ability to pay, but the amount of property owned by 
 the individual was also considered. Under these circum- 
 stances the question naturally arises whether or not such 
 taxes could properly be called income taxes. Professor 
 Seligman is of the opinion that they could not and has 
 expressed his views as follows : 
 
 *. Faculty ("das Maas der Steuerkraft") the measure of tax- 
 paying ability) has been defined as "the whole amount of income re- 
 maining to the taxpayer (after deducting the expense of its produc- 
 tion) which can be demanded for purposes of taxation with due re- 
 gard for his standard of living. Von Scheel, Die progressive Be- 
 steuerung, in Zeitschrift fuer die gesammte Staatswissenschaft, Vol. 
 31, p. 284, 1875. This definition looks wholly to income. A broader 
 definition, though somewhat vague, is "the sum of the economic 
 conditions which tend to make it possible or easy to get together the 
 tax." R. Meyer, Die Principien der gerechten Besteiierung, p. 311, 
 1883.
 
 2O4 INCOME TAXATION 
 
 The points which I desire to emphasize here are that 
 these faculty taxes were not direct income taxes at all ; that 
 they were simply an addendum to the early land taxes, 
 originally levied on product; and that with the change of 
 the taxes on product into taxes on property these faculty 
 taxes gradually fell into disuse. To call them income taxes 
 is a misnomer. Income taxes in the modern sense were 
 levied for the first time in England in 1799, and it was at a 
 considerably later period that they spread to other countries. 
 To claim then, that our colonial taxes on faculty were in- 
 come taxes betrays a confusion of thought and an ignorance 
 of economic distinctions. The faculty tax had its origin in 
 the same motives that have led to the introduction of 
 modern income taxes, but it was not an income tax, just as 
 the French land tax and the German Lohnsteuer of today, 
 levied on the produce of land and of industry respectively, 
 are not income taxes. The distinction between real taxes 
 on product, on the one hand, and personal taxes, or taxes 
 on income, on the other hand, is one of fundamental im- 
 portance in the science of finance. To disregard it can only 
 bring confusion. To observe it will enable us to explain 
 what is otherwise inexplicable in American economic his- 
 tory. 2 
 
 On the other hand, Doctor Kinsman, who has made a 
 thorough study of these taxes makes the following dis- 
 tinction : 
 
 The essential point in which the faculty tax differed 
 from the later income tax was in the method of assess- 
 ment. As a rule the faculty tax was an estimated tax, 
 whereas the income tax proper has been, in theory at 
 least, a tax upon the actual income of individuals. The 
 most superficial examination reveals the fact that the 
 
 2 . Political Science Quarterly, Vol. X (June, 1895), p. 247.
 
 AMERICAN COLONIES 
 
 2O5 
 
 faculty tax underwent an important evolution in the 
 colonial period, developing from a vague, indefinite effort 
 to tax personal ability to a definite, well-defined tax directed 
 against income from wages and profits. 3 
 
 The whole question is one of nomenclature and could 
 perhaps be settled by calling the faculty taxes partial in- 
 come taxes. In any case, it is quite evident that most of 
 the state income taxes thus far levied were based upon, 
 and found their beginnings in, the faculty taxes of 
 colonial times. 
 
 In Massachusetts, as early as 1634, there was enacted 
 a law that "in all rates and public charges the towns 
 should have respect to levy every man according to his 
 estate, and with consideration of all other his abilities 
 whatsoever and not according to the number of his per- 
 son." This law was gradually made more explicit and 
 comprehensive until in 1646 it provided that certain 
 tradesmen should be rated according to their "returns and 
 incomings," "proportionable to the product of the estates 
 of other men." Upon the union of the colonies in 1692 it 
 was provided that real and personal property should be 
 taxed according to its yearly "value or income" and in 
 1695 the tax upon handicraftsmen was fixed at "4 pence 
 on the pound for his income." It will be seen that the 
 tax of this period, although not of universal application, 
 contained all the essential elements of a proportional in- 
 come tax. In 1738 a certain flexibility was given to the 
 
 3 . Delos O. Kinsman. The Income Tax in the Commonwealths 
 of the United States. Publications of the American Economic As- 
 sociation. Nov., 1903. This excellent little book represents a great 
 amount of original research and we are indebted to it in large meas- 
 ure for the facts given in this chapter. See also Seligman's 
 valuable article on The Income Tax in the American Colonies and 
 States in Vol. 10, Political Science Quarterly, June, 1895.
 
 2O6 INCOME TAXATION 
 
 operation of the tax by a requirement that "the income 
 or profit received from any trade, faculty, business or 
 employment whatsoever, and all profits which may or 
 shall arise by money or other estate not particularly 
 otherwise assessed, or commissions of profit in their im- 
 provement, according to their understanding and cun- 
 ning should be taxed at one penny on the pound to abate 
 or multiply the same, if needs be, so as to make up the 
 sum hereby set and ordered for such town or district to 
 pay." It is quite possible that this provision for the 
 variability of the rate according to necessity marks the 
 origin of a principle which is a prominent feature of the 
 English income tax. The exclusion of estate "other- 
 wise assessed" is still a feature of the Massachusetts law 
 which no doubt furnishes a convenient loop-hole of escape 
 for a great amount of property, and accounts in a meas- 
 ure for the acknowledged inefficiency of this legislation. 
 It will be noted that the rate of taxation on incomes was 
 sometimes different from the rate on other property. 
 For example, in 1778, the assessors were required to take 
 into consideration the w r ay in which the income, or profit, 
 was made and to assess it at such a rate as they judged to 
 be just and reasonable, provided they did not assess such 
 income or profit at more than five times the amount in 
 other kinds of estates. It is an interesting fact that the 
 Massachusetts income tax law of 1780 has continued in 
 force without any very material modification to the pres- 
 ent time. It is unfortunate that the amounts collected 
 from incomes in the Massachusetts colony cannot be 
 known owing to the fact that they were blended with 
 other taxes.
 
 Connecticut adopted the law of Massachusetts Bay in 
 1649. The law was amended from time to time and in 
 1771 was made to apply to "all traders by wholesale, 
 tradesmen, artificers, tavern keepers and others by law 
 rateable on account of their faculty or business." It 
 should be noted that the tax gradually came to be in lieu 
 of, rather than supplemental to, the property tax. 4 Real 
 estate was rated not according to its value, but in propor- 
 tion to the annual income, which, on the average, it was 
 deemed likely to produce. Land was put into 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 which it would 
 produce." 5 
 
 The law was repealed in 1819. It is to be regretted 
 that the principle which it embodied of taxing land ac- 
 cording to its productivity rather than according to its 
 mere selling value was abandoned and not elaborated as 
 it might have been. 
 
 In Rhode Island the first attempt to levy a faculty tax 
 seems to have been made in 1673 when it was provided 
 that taxes ought to be assessed not alone according to 
 property, but also according to the "faculty," or "profits 
 and gains" of individuals. The rate on merchants and 
 tradesmen was assessed "according to the yearly profit." 
 As late as 1744 assessors were required to "consider all 
 persons who made profits by their faculties and rate them 
 accordingly." But the law does not seem to have been 
 very effective. It finally fell into entire disuse probably 
 about 1750. 
 
 American State Papers. Finance, Vol. 1, p. 423. 
 Report of Connecticut Tax Commission of 1887.
 
 2O8 INCOME TAXATION 
 
 New Hampshire had about the same experience with 
 the tax as Rhole Island. In 1719 the selectmen were au- 
 thorized to assess inhabitants "according to their known 
 ability and estate ;" but the law became a dead letter and 
 it does not appear in the tax law of 1794. 
 
 Vermont. From 1779, until it became a state. Ver- 
 mont had a law which taxed attorneys at law, tradesmen, 
 traders and artificers "proportionable to their gains and 
 returns." 
 
 Virginia, although late in its adoption of the faculty 
 or income tax, seems to have profited somewhat by the 
 experience of other colonies and its first law in 1777 was 
 evidently framed with some care. It required assessors 
 not only to assess all real and personal property, but also 
 to obtain from each taxable person (except military 
 officers) a sworn statement of the amount received from 
 interest and also of the amount received from salaries 
 and fees. Each taxpayer was required to keep a distinct 
 account of his "neat income." The tax amounted at first 
 to t\vo shillings on the pound (10%) on interest and ten 
 shillings on each hundred pounds (.005%) on salaries. 
 The law was to remain in force for seven years, but the 
 amount realized from the tax the first year w r as so small 
 that the rates were raised to four shillings on the pound 
 for annuities and twenty shillings for every hundred 
 pounds of the "neat income of all offices of profit." This 
 amendment to the law was to be in force for six years; 
 but, when the revenue laws of the state were revised in 
 1782, the taxes on income were omitted with the excep- 
 tion of a tax of clerks for courts of one-third their fees, 
 which was repealed in 1790.
 
 STATE INCOME TAXES 2O9 
 
 South Carolina has had a long experience with the 
 income tax. The original law of 1701 was changed in 
 1703 so as to apply to "estates, goods, merchandise, 
 stocks, abilities, offices and places of profit." In 1758 the 
 law was changed so as to require store-keepers, as well as 
 physicians and surgeons to be taxed "for their stock and 
 trade and the profits of their professions at the rate of 
 eighteen shillings for every one hundred pounds (0.9%) 
 upon the full value of their profits." In 1760 the law 
 was again amended so as to provide for a tax of "six 
 pence per cent" (254%), "on the profits of all faculties, 
 professions (except the clergy) factorage and handicraft 
 trades throughout the province to be ascertained and 
 rated by the several assessors and collectors according to 
 the best of their knowledge and information." 
 
 The law remained in this form until the adoption of 
 the first constitution in 1776. 
 
 STATE INCOME TAXES. 
 
 There is a surprisingly large number of people, 
 especially in the western and central portions of the 
 United States who are disposed to look at a state income 
 tax as a newly discovered and highly promising measure 
 of fiscal reform. To some such it may come as a surprise 
 to learn that income taxes in almost every imaginable 
 form have been tried for many years in some of the east- 
 ern and southern states. The following is a rough sum- 
 mary of the periods for which income taxes, in some 
 form or other, have been in force in twenty of the states, 
 the colonial and statehood periods being combined :
 
 2IO INCOME TAXATION 
 
 State from to 
 
 Alabama 1844 1884 
 
 Connecticut 1649 1819 
 
 Delaware 1869 1871 
 
 Florida 1845 1855 
 
 Georgia 1863 1866 
 
 Kentucky (as to U. S. Bonds) 1867 1871 
 
 Louisiana 1865 1910 
 
 Maryland 1842 1850 
 
 Massachusetts 1843 1910 
 
 Missouri 1861 1866 
 
 North Carolina 1849 1910 
 
 Oklahoma 1908 1910 
 
 Pennsylvania 1841 1871 
 
 Rhode Island 1673 1750 (?) 
 
 South Carolina 1838 1868 
 
 1898 1910 
 
 Tennessee (as to U. S. Bonds) 1883 1910 
 
 Texas 1863 1871 
 
 Vermont 1777 1782 
 
 " 1778 1850 
 
 Virginia 1843 1910 
 
 West Virginia 1863 1864 
 
 (Where the year 1910 is given above, the intention is to state 
 that the law is not yet repealed.) 
 
 It would lead too far to attempt to review in detail 
 the experiences of all these states and only an outline of 
 the methods adopted and results obtained will be given. 
 
 "Alabama. The income tax law of this state began 
 about 1844 with a tax of one-half of one per cent on the 
 incomes of certain professional and salaried men. In 
 1848 the rate was raised to one per cent and the scope of 
 the act somewhat extended. On the whole however it 
 could hardly be called a general income tax until 1862, 
 when it was made to include a tax of five per cent on the 
 "net profits" of many forms of business and ten per cent 
 upon the wages and salaries of certain men exempt from 
 military service. The law contained the usual provision 
 that persons failing or refusing to furnish a written state- 
 ment under oath of their receipts, salaries, commissions 
 and profits should be liable to fine or imprisonment or 
 both. In 1864 the rates were raised and in 1866 a gen-
 
 ALABAMA 211 
 
 eral provision was incorporated in the law to the effect 
 that "a tax of one per cent be levied upon the annual 
 gains, profits, salaries and income in excess of $500 re- 
 ceived by any person within the State." In 1868 the 
 amount exempted from the tax was raised to $1,000, but 
 in 1875 it was lowered to $500. The rate, which had 
 been raised to three-fourths of one per cent was reduced 
 in 1881 to 65 cents on each $100 and the exemption, 
 which had been dropped in 1876, was restored and fixed 
 at $800. The working of the law however was so un- 
 satisfactory that in 1883 the report of the State Auditor 
 in recommending its repeal used the following language : 
 "Taxes upon salaries, gains, incomes and profits are re- 
 garded with disfavor by almost every taxpayer, no mat- 
 ter how willing he may be to contribute his part to the 
 support of the government of the state. Such taxes are, 
 in the very nature of things, attained by processes in- 
 quisitorial in character and therefore to most persons ex- 
 ceedingly obnoxious. In addition to this the law au- 
 thorizing them has never been and probably never will 
 be properly executed and consequently does not bear 
 equally alike upon all. * * * I do not hesitate, there- 
 fore, to give it as my opinion that it should be repealed." 
 In 1884 the legislature passed an act requiring assessors 
 in each county to levy the tax due upon salaries, profits 
 and incomes that had escaped at any time during the pre- 
 ceding ten years, thus affording another instance of the 
 naive manner in which legislatures expect to accomplish 
 practical impossibilities by merely passing a law. The 
 attempt to tax incomes was finally abandoned in 1884, 
 although there are certain taxes upon gross incomes 
 which have been retained and which are near the border
 
 Year 
 
 Income Tax 
 
 Total State Tax 
 
 1870 
 
 $11,547.16 
 
 $1,122,785.45 
 
 1872 
 
 8,269.07 
 
 767,193.38 
 
 1875 
 
 3,778.54 
 
 459,263.59 
 
 1879 
 
 8,109.46 
 
 790,000.00 
 
 1880 
 
 9,078.39 
 
 521,346.32 
 
 1881 
 
 11,705.48 
 
 620,805.81 
 
 1882 
 
 22,115.93 
 
 659,044.10 
 
 1883 
 
 14,362.59 
 
 610,782.18 
 
 1884 
 
 11,532.35 
 
 678,421.54 
 
 212 INCOME TAXATION 
 
 line between income taxes and licenses. The following 
 table compiled from the Auditor's Reports for the re- 
 spective years (by Doctor Kinsman), shows the amount 
 of the tax upon incomes compared with the total state 
 tax. We have added the percentage which the income 
 tax bore to the total tax. 
 
 Percentage 
 
 1. % 
 1.07% 
 
 .8 % 
 
 1. % 
 
 1.7 % 
 
 1.8 % 
 3.3 % 
 2.3 % 
 1.7 % 
 
 The bulk of the tax was always raised in the two 
 chief cities in the state and during the last four years 
 that the tax was in force an average of only 48 out of the 
 66 counties in the state levied any income tax. 
 
 Delaware. This state had a partial income tax from 
 1869 to 1871, consisting of a tax of two per cent upon 
 the income from salaries or fees received by lawyers, 
 physicians and all state and county officers, and upon the 
 gross receipts of private bankers, brokers and real estate 
 agents by way of commissions, profits, brokerage or 
 other compensation for business transacted. In 1871 the 
 law was repealed and a license tax substituted. 
 
 Florida. In 1845 a tax amounting to one-fifth of one 
 per cent was levied upon the income of lawyers, doctors, 
 public weighers of cotton and other produce, public in- 
 spectors and pilots, and in 1850 a tax of two per cent was 
 levied upon the commissions of commission merchants 
 and factors. The amounts collected under this law were 
 insignificant and it was repealed in 1855. 
 
 Georgia. The experience of this state is quite in- 
 teresting, because of the large amount which was raised
 
 GEORGIA 
 
 213 
 
 an amount far in excess of that which has ever been 
 raised by any other state; but the tax was essentially a 
 war tax and it was dropped soon after the war was ended. 
 The law, as introduced early in the year 1863 at an extra 
 session of the legislature, was designed to provide pen- 
 sions for dependent widows and orphans of soldiers and 
 to provide for the support of disabled soldiers of the 
 Confederate army. 6 It was strictly a tax upon profits 
 and the returns were required to show the capital invested 
 as well as the amount of profit. If the net profit or in- 
 come equaled twenty per cent of the capital invested a 
 tax of one-half of one per cent was levied. If the income 
 was between 20 and 30 per cent the rate was 1^ per cent 
 and it then increased at a regular ratio ; but the law was 
 modified in December of the same year so as to require 
 the following scale of rates : 
 
 If the net income or profits, 
 above 8% of the capital stock, 
 amounted to 
 
 If between 
 
 above 
 
 $ 10,000 or less 
 
 10,000 and 15,000 
 
 15,000 20,000 
 
 20,000 30,000 
 
 30,000 50,000 
 
 50,000 75,000 
 
 75,000 100,000 
 
 100,000 
 
 The 
 rate 
 of 
 
 tax was 
 
 5. % 
 
 7.5% 
 
 10. % 
 
 12.5% 
 
 15. % 
 
 17.5% 
 
 20. % 
 
 25 % 
 
 6 . This law will be found on page 176 of Laws of Georgia, 
 passed November and December, 1862, and March and April, 1863. 
 The full rates were : 
 
 Profits of 20% 0.5 % 
 
 over 20% to 30% or under 1.5 % 
 
 30% 
 
 40% 
 50% 
 60% 
 70% 
 80% 
 90% 
 
 40%; ' 
 
 50% " 
 
 60% " 
 
 70% " 
 
 80% " 
 
 90% " 
 
 100% " 
 
 2. % 
 
 .2.5% 
 .3. % 
 .3.50%; 
 .4. % 
 .4.50% 
 .5. % 
 
 "and so on in the same ratio of per cent profit and taxation ad in- 
 finitum." It is probable that the taxes of 1863 were collected under 
 this law as the second law was not "assented to" until Dec. 14, 1863.
 
 214 INCOME TAXATION 
 
 The somewhat drastic provision was added that any 
 person failing to comply with the provisions of the act 
 was subject to confinement in the penitentiary for not less 
 than one year nor more than five years and the tax col- 
 lector was required to assess a double tax upon the tax- 
 able income of said delinquent. 
 
 The yield of this tax w r ould seem to have been very 
 large. Doctor Kinsman, on the authority of Avery's 
 History of Georgia (p. 267), has stated that the amount 
 of income assessed in 1863 was $15,737,479, and the tax 
 collected was $683,235. As these amounts seemed sus- 
 piciously large, we employed a competent person to ex- 
 amine the old records and were informed, not only that 
 the above figures were correct, but that the profits above 
 8% taxed in 1864, amounted to $22,247,092 and the tax 
 to $3,195, 217.06 ( !) As the number of income taxpayers 
 is given as 3,758 the average income tax paid by each 
 would be over $850, which is certainly very remarkable, 
 if true. 
 
 Kentucky. By a law passed in 1867, assessors were 
 required to ascertain the amount of income received from 
 interest on United States bonds and a tax of 5 per cent 
 was assessed on the gross amount of said income. The 
 amount collected under this law was at first quite large, 
 but gradually diminished until the law was declared un- 
 constitutional in 1872. The amounts collected are as 
 follows : 
 
 Year Amount 
 
 1868 $118,526.80 
 
 1869 122,935.00 
 
 1870 78,299.00 
 
 1871 72,216.00 
 
 In holding the law unconstitutional the Court of Ap- 
 peals used the following language :
 
 LOUISIANA 215 
 
 It is true that when the interest is paid it ceases to con- 
 stitute a part of the debt, and is then subject to be taxed by 
 the state governments like other property held or owned by 
 their citizens ; and it is insisted that because the act quoted 
 does not by its terms necessarily imply an intention to tax 
 the interest accruing on Federal securities until it has been 
 actually received by the taxpayer, it can be enforced with- 
 out trenching upon any of the rights or exemptions secured 
 to him as the holder of such securities. 
 
 It is a sufficient answer to this assumption that the tax 
 imposed on the income or interest received from United 
 States bonds by the act in question is ten times greater than 
 that assessed on moneys received from other sources by the 
 general laws of the state. If this discrimination can be con- 
 stitutionally made, it results that it is within the power of 
 the state governments to impose penalties upon their citizens 
 for investing in the securities of the United States, and by 
 means of such penalties to render nugatory the power of the 
 government to borrow money within their respective terri- 
 torial limits. 7 
 
 Louisiana, though one of the first states to provide in 
 its constitution for an income tax, did not levy such a tax 
 until 1865. The law provided for a rate of one-fourth of 
 one per cent on the amount of income in excess of $2,000 
 annually received by all persons pursuing any trade, pro- 
 fession or occupation. The penalty for failing to make 
 a return of income or to pay the tax was 20 per cent of 
 the amount due. 
 
 In 1878 the rate was raised to thirteen mills upon 
 "the excess of all annuities, salaries and incomes over 
 $1,000 derived from any source, except from property 
 taxed." There has been no material change in the law 
 since that time except that the rate was lowered to six 
 mills on the dollar in 1882. 
 
 The law is unpopular and has become almost a dead 
 letter on the statute books. In 1868, out of a state tax 
 of $508,378, the tax on income amounted to $2,476 
 
 7 . Bank of Kentucky v. Commonwealth, 9 Bush, 46
 
 2l6 INCOME TAXATION 
 
 or less than one-half of one per cent, and in 1899 only 
 two counties returned any tax, the total amount paid 
 being only $104 out of a state tax of over $2,000,000. 
 It should be mentioned, however, that a graduated license 
 tax based in part upon income has proved more pro- 
 ductive. 
 
 Maryland. The experiences of Maryland with the in- 
 come tax afford a striking illustration of the futility of 
 laws which run counter to public sentiment. In 1842 
 a tax of 2 l / 2 per cent was levied upon salaries and emolu- 
 ments and all incomes and profits from professions, 
 faculties and employments. There was an exemption of 
 $500 and the salaries of judges and clergymen, as also 
 incomes received from property already taxed, were not 
 to be assessed. A separate tax was levied upon ground 
 rents to which however the $500 exemption did not 
 apply. The assessors were authorized to demand from 
 every taxpayer a complete statement under oath of his 
 income and a refusal to comply with this demand was 
 punishable by a fine of not to exceed $1,000. An effort 
 was also made to provide for the collection of salaries at 
 their source. 
 
 In spite of the penalties the law was practically 
 ignored in many counties and the Governor's Message 
 in 1844 referred to the "deplorable remissness in the 
 execution of the tax laws." In 1850 the law was re- 
 pealed "because of its inquisitorial character, its im- 
 pertinent scrutinizing into the affairs of private life and 
 of other difficulties which it had to encounter, and the 
 frauds and imposition it caused and above all its utter 
 failure to produce a sufficient sum." As to the amount 
 of income taxes collected while the law was in force we
 
 MASSACHUSETTS 2iy 
 
 have been unable to secure any reliable data. It is evi- 
 dent however that it was very small. 
 
 Doctor Richard T. Ely, who was a member of the 
 Maryland Tax Commission of 1888, presented a supple- 
 mentary report in which he made a strong argument for 
 a state income tax, but his suggestion was not adopted. 8 
 
 Massachusetts is often cited as a State which has had 
 income taxes for 250 years and as one of the four states 
 which has such a tax at present; but we have seen that 
 Seligman denies that the early taxes were properly in- 
 come taxes and, as to whether the present tax can be 
 called an income tax in the usual acceptation of the term, 
 there is perhaps room for argument. 
 
 In the present tax law of the state is is provided that : 
 "Personal estate for the purposes of taxation shall in- 
 clude: * * * Fourth. The income from an annuity 
 and the excess above $2,000 of the income from a pro- 
 fession, trade or employment accruing to the person to 
 be taxed during the year ending on the first day of May 
 of the year in which the tax is assessed. Income derived 
 from property subject to taxation shall not be taxed." 
 
 This is all there is of the law and it simply amounts 
 to a requirement that receipts from annuities, personal 
 services and non-taxable securities shall be considered in 
 the assessment of personal property. It will be seen that 
 there is no fixed rate upon income, but it is taxed at the 
 same rate as other property. There have been but few 
 changes in the law during the past one hundred years. 
 By a law passed in 1849 the legislature provided for an 
 exemption of $600 from the income derived from any 
 
 8 . We are informed by Doctor Ely that he has changed his 
 opinion as to State income taxes and no longer advocates them.
 
 2l8 INCOME TAXATION 
 
 profession, trade or employment. In 1866 the exemp- 
 tion was increased to $1,000. In 1871 and 1873 efforts 
 were made to repeal the law and in the latter year, as the 
 result of a compromise, the exemption was fixed at 
 $2,000. 
 
 The provision of the law exempting incomes derived 
 from property subject to taxation permits of a wide 
 latitude of interpretation and has been utilized to a very 
 large extent as a means of evading the tax. For example, 
 in Boston, it has been customary to treat income as ex- 
 empt which had been saved and invested in taxable prop- 
 erty or securities. In a case which arose in 1869, where 
 a merchant sought to avoid the payment of the income 
 tax on the ground that the stock of goods which he had 
 on hand on the first day of May was all taxed, the Su- 
 preme Court held that the income was the product of 
 many combined influences, some of which it named and 
 was in short "a combination of capital, industry and 
 skill." It was, therefore, held that the "tax which has 
 been assessed upon the petitioner is not for an income 
 derived from specific goods and merchandise ; but for in- 
 come derived from the business of dealing commercially 
 in the like goods and merchandise with such a degree of 
 skill, judgment and good fortune that his share of the 
 year's products amounts to the sum which he returned as 
 his income from business." 9 
 
 9 . Wilcox vs. County Commissioners of Middlesex, 103 Mass. 
 544. 
 
 This decision gave rise to much dissatisfaction among merchants 
 and business men generally as is indicated by the following quota- 
 tion from an address by Jonathan A. Lane, President of the Boston 
 Merchants' Association, at a meeting of the Boston Executive Busi- 
 ness Association April 20, 1891. 
 
 "Of course, this decision obliterates the distinction made between 
 two classes; virtually repeals the act declaring that one class shall
 
 MASSACHUSETTS 
 
 219 
 
 Another cause for the failure of the tax in Massa- 
 chusetts is the fact that the tax is not collected by the 
 state, but the total amount of state tax is apportioned to 
 the local taxing units and they are left free to enforce it 
 or not, as they please, the state officials being indifferent 
 so long as the total amount of state tax is raised. The 
 result is that no effort is made to enforce the tax in the 
 great majority of the cities and towns. A statement 
 which was made up at the request of the Special Tax 
 Commission of 1875, for the year 1873, showed that out 
 of 340 towns 273 reported no income assessed and 17 
 were not heard from. The Tax Commission of 1897 
 requested all the cities of the state to report their assess- 
 ment of personal property and of the 32 cities, all except 
 Boston and Summerville responded. It appeared from 
 these reports that the total assessed valuation of personal 
 property in the 30 cities for the year 1895 was $194,783,- 
 718, but of this sum $3,880,220, or less than 2 per cent 
 of the personal property was assessed as income. Nine 
 cities reported no income and the two cities of Medford 
 and Springfield reported nearly one-half of the whole 
 amount. 10 
 
 not be taxed upon both the property and income therefrom; is con- 
 trary to the obvious meaning of the language and intent of the law ; 
 does great injustice to the tax-paying business men; strikes all fair- 
 minded persons as an outrage upon the common sense and intelli- 
 gence of the State; and it results in a kind and degree of double 
 taxation, without a parallel in these United States, so far as we have 
 been able to learn." 
 
 10 . Report of the Commission appointed to inquire into the ex- 
 pediency of revising and amending the laws of the Commonwealth 
 relating to taxation, 1897, p. 104. Upon the question of State income 
 taxes in general the following conclusion is reached : "We fear that 
 no effective public opinion would be present to aid the administration 
 of a State income tax, and that evasion and concealment would take 
 place to so great an extent as to render it ineffective and deservedly 
 unpopular."
 
 22O INCOME TAXATION 
 
 On account of the method by which the income tax is 
 merged with other personal property taxes, no accurate 
 statistics of the amount of taxes collected can be ob- 
 tained, but it is probable that the tax has rarely exceeded 
 $100,000 in any one year. 
 
 The fact that the income tax is considered as simply 
 one of the many forms of personal property and is not 
 taxed separately accounts in a measure for the poor suc- 
 cess which has attended its enforcement. In Massa- 
 chusetts, as in every other state, the attempt to tax per- 
 sonal property has been practically a failure. The Special 
 Committee on Taxation of the Boston Executive Busi- 
 ness Association, in a report made October 21, 1889, ex- 
 pressed themselves somewhat passionately on the subject 
 as follows: 
 
 Your committee have not the quality of omniscience, 
 we thank God that he alone possesses this divine attribute, 
 but your committee do know, of their own knowledge, facts 
 in regard to the disproportion, inequality, injustice, and op- 
 pression of taxation on personal property in the State of 
 Massachusetts that, in comparison with the methods and 
 results under the Sultan of Turkey, Shah of Persia, or any 
 other despotism of the Old World, would afford these 
 Oriental monarchs the greatest complacency, and should 
 mantle the cheek of Massachusetts with shame. 
 
 The same Committee gave their opinion of the in- 
 come tax in the following words : 
 
 Your committee do not hesitate to unqualifiedly con- 
 demn the present income tax upon business, stocks of goods, 
 and capital in trade, because it is plain violation of law, 
 which forbids the taxing of income derived from property 
 subject to taxation. They heartily admit that an income 
 tax from profession, trade, or employment, or from personal 
 property not subject to taxation (in excess of present limita- 
 tions, two thousand dollars), would be right. But so great 
 is the prejudice against an income tax of any sort, so strong 
 the temptation to evade it, and so inquisitorial is the method
 
 MASSACHUSETTS 221 
 
 of enforcing its obligation, that we deem it good policy to 
 put it aside, and to rely upon methods of taxation which 
 shall be more simple, sensible and reasonable, and which 
 would command the more cheerful assent of all the people. 
 
 The special tax commission of 1875 gave the subject 
 very careful attention and admitted that the law worked 
 hardship, inequality and injustice, but they were not 
 wholly prepared to abandon the idea of income taxation 
 and they expressed the opinion that "However unpopular 
 the income tax is and we admit it is extremely so and 
 however irregular and inefficient its administration, all 
 of which in the actual fact it would be difficult to ex- 
 aggerate, it seems that no one can clearly understand 
 this tax without admitting both its economy and its 
 justice." The recommendations were: First, that the 
 exemption be lowered to $1,000; second, that no deduc- 
 tions should be permitted for income invested either in 
 taxable property or otherwise; third, that as to property 
 employed in business, a deduction of 6 per cent of the 
 assessed value of the property should be allowed; and, 
 fourth, that a supervising department of taxes should be 
 established. In spite of the excellence of these recom- 
 mendations they were not adopted. 
 
 The Massachusetts Tax Commission of 1897, which 
 was composed of very able men and which prepared a 
 report of great value, practically admitted the complete 
 failure of the income tax and recommended in lieu of it 
 a tax on occupants of houses having a rental value of 
 more than $400 a year. The rate of taxation was to be 
 10 per cent upon the excess of rental value over $400, so 
 that a person occupying a house the rental value of which 
 was $500 would pay a tax of $10 a year. It should be
 
 222 INCOME TAXATION 
 
 stated, however, that this proposition was not endorsed 
 by the full commission and the Massachusetts Legislature 
 has not as yet taken any action upon it. 
 
 On the whole it must be conceded that the experiences 
 of the State of Massachusetts in attempting to tax in- 
 comes, in spite of the fact that those experiences extend 
 over so long a period, are of such a character that they 
 form no proper basis for an argument either for or 
 against state taxation of incomes. 
 
 Missouri. The income tax in Missouri which was in 
 force from 1801 to 1865 was essentially a war tax. As 
 at first levied it applied to salaries in excess of $800 and 
 to income "derived from public stocks, bank stocks, stocks 
 of chartered companies or from other property, real or 
 personal, not taxed in the state." The rate was thirty- 
 two cents on $100. which was lowered in 1864 to one- 
 fifth of one per cent. The exemption was reduced at the 
 same time to $200. In 1865 the rate was raised to three 
 per cent on salaries of officials exempt from military duty 
 by reason of their offices and two per cent on other 
 salaries. The exemption was also raised to $600 and it 
 was provided that the sum produced by the tax should be 
 paid into the Union Military Fund. In case of failure to 
 make a sworn return of the amount of income the asses- 
 sor was authorized to value the income at double what he 
 had reason to believe it ought to be. 
 
 North Carolina. This state has had an income tax 
 for sixty years and the law has been materially changed 
 over twenty times. To trace the history of all these 
 changes would hardly serve a useful purpose as the vari- 
 ous laws have been so loosely administered that no de- 
 ductions can be drawn as to their relative merits. Both
 
 NORTH CAROLINA 223 
 
 progressive and proportional taxes have been tried and 
 differentiation and classification have been carried further 
 than in any other state. 
 
 The original law of 1849 levied a three per cent tax 
 on interest and profits from certain investments. There 
 was a $00 exemption and a tax of $3.00 on salaries over 
 $500. The plan of levying separate rates upon salaries 
 is one which seemed to meet with favor as it was per- 
 sistently followed for half a century. In 1851 this por- 
 tion of the tax was given a progressive character by a 
 provision that all persons except clergymen, the Governor 
 and Judges of Supreme and Superior Courts should 
 be assessed $2.00 for salaries between $500 and $1,000 
 and $2.00 for every additional $500. In 1855 the rate 
 on interest was raised to four per cent, and numerous 
 minor changes made in the law. The extent to which 
 classification was carried may be seen by the law of 1863. 
 The tax on salaries was left as in 1851, except that the 
 exemption was raised to $1,000 and it was not to apply 
 to certain military officers and public officials. The rate 
 on profits or interest from capital invested in banks was 
 fixed at eight per cent. Ten per cent was levied upon the 
 income of "Note Shavers" and brokers. Twenty per cent 
 was the rate upon profits of liquor dealers who brought 
 liquors into the state or bought from non-residents, while 
 dealers in liquors distilled in the state paid ten per cent 
 and hotel keepers one per cent. Five per cent was levied 
 upon the net profits received from the purchase and sale 
 of articles brought into the state through the blockade or 
 bought in Northern states. A rate of two per cent was 
 levied upon net profits of moneys invested in sundry 
 manufactures or in steamboat or railroad companies.
 
 224 INCOME TAXATION 
 
 These instances will perhaps suffice to show the extent to 
 which classification of sources of income was carried. 
 The rates experienced many changes which we shall not 
 attempt to mention in detail. 
 
 In 1866 salaries or fees in excess of $500 were taxed 
 one per cent and a progressive rate was applied to general 
 profits as follows : 
 
 Incomes above $ 500 and less than $1.000 ............ 1 % 
 
 1,000 " " " 2,000 ............ \V 2 % 
 
 2,000 " " " 3.000 ............ 2 % 
 
 3,000 " " " 4,000 ............ 2 l / 2 % 
 
 4,000 " " " 5.000 ............ 3 
 
 5,000 
 
 In 1867 the law reverted tow r ard a proportional rate, 
 general profits being subjected to a tax of one-half of one 
 per cent on amounts from $500 to $3,000 and one per 
 cent on incomes of $3,000 or more. In 1869 the law was 
 still further simplified by providing a tax of two one-half 
 per cent upon annual net income and profit from any 
 source whatever except from property already taxed. In 
 1870 this rate was lowered to one and one-half per cent. 
 In 1885 the deductions and exemptions, which had been 
 specified in detail and limited to a total of $1,000, were 
 given a maximum limit of $1,500. 
 
 The progressive rate was again adopted in 1893 and 
 re-enacted w r ith slight changes in 1895, 1897 and 1899. 
 There was considerable popular prejudice against the pro- 
 gressive system and in 1901 a strictly proportional tax 
 on incomes above $1,000 was adopted. The law experi- 
 enced slight changes in 1903, 1907 and 1909. As it now 
 stands the rate is one per cent on all gross incomes in ex- 
 cess of $1,000 and the law further provides that "the in- 
 comes subject to the above tax are those derived from 
 property not taxed ; from salaries, fees and commissions,
 
 OKLAHOMA 225 
 
 public or private; from annuities; from trades or profes- 
 sions and from any other sources the incomes from which 
 are not specifically exempt from taxation by law." Cities, 
 towns, townships and counties are expressly prohibited 
 from levying income or inheritance taxes. All taxpayers 
 are required to list their incomes and penalties are pre- 
 scribed for divulging or publishing the amounts of in- 
 dividual income. 
 
 The results of the tax have been disappointing, the 
 largest amount produced by the tax having been 
 $36,829.44 in 1907. A table showing amounts collected 
 and total state taxes for many years will be found in 
 Appendix E. 
 
 Oklahoma. The income tax law for this state which 
 was passed May 26, 1908, has at least the merit of 
 brevity. It provides that at the time of making the 
 assessment of real and personal property, the assessor 
 shall demand of each person a statement of his income in 
 so far as it exceeds $3,500. The blank for such a tax 
 contains the question, "Was your gross income from 
 salaries, fees, trade, profession and property upon which 
 a gross receipt or excise tax has not been paid, any and 
 all of them, for the year ending June 30th last preceding, 
 in excess of $3,500?" If the person answers the question 
 in the affirmative he is to be furnished by the assessor 
 with a blank in the following form : 
 To the State Auditor of the State of Oklahoma : 
 
 I hereby certify that my income from salaries, fees, 
 trades, professions and property upon which a gross receipt 
 or excise tax has not been paid, any and all of them, for the
 
 226 INCOME TAXATION 
 
 year ending June thirtieth, in excess of three thousand five 
 hundred dollars was $ 
 
 I being duly sworn do certify 
 
 that the foregoing certificate is true to the best of my knowl- 
 edge and belief. 
 
 Subscribed and sworn to before me this day 
 
 of.. 
 
 Assessor. 
 
 The assessor forwards the certificate to the State 
 Auditor who certifies to the proper county clerk the 
 amount of the tax due upon the income so reported, and 
 the same is then extended on the tax rolls in the same 
 manner as other property. The assessor of each town- 
 ship is required to furnish the State Auditor a list of all 
 persons who are subject to the tax and who have made 
 the above declaration, together with the names of other 
 persons who, in his opinion, may be liable for income 
 tax; and the State Auditor is given power to subpoena 
 witnesses and take other steps to ascertain whether such 
 persons ought to make returns. The rates levied may be 
 seen by the following table : 
 
 Incomes Tax on $1.00 Percentage 
 
 $ 3,500 to $ 5,000 5 mills ^ of 1% 
 
 5,000 " 10,000 7 l / 2 
 
 10,000 " 20,000 12 
 
 20,000 " 50,000 15 
 
 50,000 " 100,000 20 
 
 1% 
 1 1/5% 
 
 2% 
 31/3% 
 
 100,000 and above 33 1/3 
 
 It should be noted that these rates are levied upon 
 gross incomes. The only exception occurs in the case of 
 interest derived from property upon which a gross re- 
 ceipt or excise tax has been paid. It is made unlawful to 
 print or publish in any manner any income tax return or 
 any part thereof, and penalties are provided for false 
 swearing or failure on the part of the assessor to perform 
 his duty.
 
 OKLAHOMA 227 
 
 A notable feature of this law is the unusually high 
 exemption, which will probably prevent its application to 
 the great majority of the inhabitants of the state. The 
 population of the state in 1900 was 790,205 and the next 
 census will no doubt show it to be over one million. We 
 venture the prediction that the tax will be paid by less 
 than one thousand people, and possibly by less than one 
 hundred. 
 
 The income tax proper is levied for the benefit of the 
 common school fund, and the amount certified to the 
 county clerks by the State Auditor in 1909 was only about 
 $1,500 out of a total ad valorem state tax of $1,953,285. 
 It is unlikely that even that small amount was actually 
 collected, as there was some doubt as to the legality of 
 the tax owing to the fact that the law (as to the first 
 year's tax) seemed to apply to a period prior to the or- 
 ganization of the state government (November 16, 1907) 
 and an act had been passed remitting the state taxes for 
 1907. The amount collected in 1909 cannot therefore be 
 considered as any criterion of what will be raised by the 
 tax hereafter. 
 
 The definition of the term "gross income" is likely to 
 play an important role in the administration of the tax. 
 If interpreted to mean "gross receipts" the tax may prove 
 very burdensome to farmers, merchants and manu- 
 facturers who may receive and disburse large sums in 
 the course of a year without realizing much or any profit. 
 
 In addition to the income tax proper, there is a grad- 
 uated land tax which is supplemental to the ad valorem 
 tax and is based upon the average value of farm land. 
 According to the terms of this act, which assumes the
 
 228 INCOME TAXATION 
 
 average value of farm lands to be $20 an acre, a supple- 
 mentary tax is levied as follows : 
 
 Over 640 acres in value ($ 12,800) not to exceed 1,280 acres .25% 
 
 : 1,280 " " " ($ 25,600) " " " 3,000 " 1% 
 
 1 3,000 " " ($ 60,000) " " " 5,000 " 2% 
 
 ' 5,000 " ($100,000) " " " 10,000 " 5% 
 
 " 10,000 ($200,000) " " 25,000 " 10% 
 
 This, it is true, is not an income tax, but it becomes 
 such in the case of leased lands, as a person holding such 
 lands under lease or contract of rental is taxed upon his 
 "income, rents or profits" from holdings as follows : 
 
 In excess of 640 acres not exceeding 1,280 acres 1% 
 
 " 1,280 " " 2,500 " 3% 
 
 " " 2,500 " " 5,000 " 5% 
 
 " 5,000 " 10,000 " 10% 
 
 It is provided that this tax shall be "in addition to 
 other taxes levied, charged and collected" so that the re- 
 sult would be as to a person leasing 10,000 acres (assum- 
 ing the value to be $20 an acre, the ad valorem tax, say, 
 3%, and the profit 10%), that he might be called on to 
 pay an ad valorem tax of $6,000, an income tax of $198, 
 and a graduated land tax of $2,000, being a total of 
 $8,198, or nearly 41 per cent of his whole income. These 
 rates are of course prohibitive and the law was no doubt 
 framed more with a view to prevent large holdings than 
 to secure revenue. 
 
 Pennsylvania. The first attempt to levy taxes upon 
 incomes was made in 1817, but proved abortive. In 1841 
 a tax of one per cent was levied upon salaries and fees, 
 and the following year the rate was increased to two per 
 cent with a rate of one per cent upon income from trades, 
 occupation or professions. The amount exempted was 
 $200. The law remained in this form with but slight 
 changes until it was repealed in 1871. The results at- 
 tained by the tax are not known as the tax was not re-
 
 SOUTH CAROLINA 229 
 
 ported upon separately. The Governor's Message for 
 1844 contained a statement that, out of total state 
 revenues of nearly a million dollars the income tax con- 
 tributed only $1,386. 
 
 Mention should be made however of another tax 
 which proved more successful and which might be de- 
 scribed as a corporation income tax. Beginning in 1835 
 as a graduated tax upon bank dividends, it finally de- 
 veloped into a simple proportional tax of three per cent 
 upon the annual net earnings or income of all corpora- 
 tions. This tax is all collected at the source, the com- 
 panies being required to pay it directly to the state. Ac- 
 cording to Kinsman, the tax meets with general ap- 
 proval and yields about one-half of the total revenue of 
 the commonwealth; but the statement as to the yield of 
 the tax would seem to be erroneous as we are informed 
 by a letter from the Auditor General that the total amount 
 collected from this tax for the year ending November 30, 
 1909, was only $44,533.29. 
 
 South Carolina. With the exception of the years 
 1868 to 1897, South Carolina has had a continuous ex- 
 perience with faculty and income taxes extending over a 
 period of 209 years, though it was not until the time of 
 the Civil War that the law began to assume the form of 
 a general income tax. In 1861 a tax of one per cent was 
 levied on certain specified professional incomes, and on 
 salaries over $500. In 1864 the tax on wages and salaries 
 was repealed, but it was re-enacted with some changes in 
 1866. When the new constitution was adopted in 1868, 
 the income tax was dropped and nearly thirty years 
 elapsed before any serious attempt was made to introduce 
 it again.
 
 230 INCOME TAXATION 
 
 The constitution of 1895 provided for "a graduated 
 tax on incomes and for a graduated license on occupations 
 and business." In 1896 an attempt was made to pass 
 an income tax law, but the bill was defeated. In the fol- 
 lowing year a new bill was introduced which met with 
 determined opposition and occasioned much public dis- 
 cussion. While a majority of the legislature favored the 
 law there was great diversity of opinion as to what should 
 be the rate and the amount of exemption. The law was 
 finally passed in March, 1897, with a provision that it 
 should go into effect January 1, 1898. The rates were 
 fixed at one per cent on all "gains, profits or income" 
 above $2,500 and up to $5,000; one and one-half per 
 cent on amounts from $5,000 to $7,500 ; two per cent on 
 $7,500 to $15,000 and three per cent on all over $15,000. 
 While the word "income" was to be taken as meaning 
 "gross profits" it was provided that there might be de- 
 ducted the necessary expenses actually incurred in carry- 
 ing on the business or profession. The amount to be 
 raised \vas apportioned among the counties and levied and 
 collected at the same time and in the same manner as 
 other taxes. 
 
 Strenuous efforts to repeal the law were made in 1900 
 and 1901 and bills for that purpose were passed unani- 
 mously in the lower house, but met with defeat in the 
 Senate. 
 
 The Report of the Comptroller General for the year 
 1909 gives the yield of the tax as follows : 
 
 1898, $ 689.55 1904, $ 1,281.26 
 
 1899, 4,829.63 1905, 2,130.61 
 
 1900, 975.37 1906, 12,201.42 
 
 1901, 609.22 1907, 10,687.34 
 
 1902, 292.08 1908, 8,431.52 
 
 1903, 1,476.74 1909, 16,236.57
 
 TEXAS TENNESSEE 231 
 
 Texas. A partial income tax of one-quarter of one 
 per cent on salaries in excess of $500 was levied as a war 
 measure in 1863. The amount raised was very small and 
 in accordance with a recommendation of the Governor 
 in 1866, a general income tax bill was passed, which pro- 
 vided for the following rates on net income : 
 
 On first $1.000 1 % 
 
 " second $1,000 1*4% 
 
 " third, fourth and fifth $1,000 2 % 
 
 " all above $5,000 3 % 
 
 As was customary in the southern states at that time, 
 salaries were not treated as incomes, but were taxed 
 separately, the rate being one-half of one per cent on the 
 excess over $600. The law made quite elaborate pro- 
 visions for ascertaining net incomes and among the many 
 deductions specified, there was one which perhaps de- 
 serves mention as being rather unusual. Profits on real 
 estate purchased within the year were treated as income, 
 but a deduction was allowed for any losses sustained on 
 real estate purchased during the same year. 
 
 In spite of the care with which the law was drawn it 
 seems to have fallen into disuse and was soon supplanted 
 by license taxes on occupations and other forms of 
 taxation. 
 
 In 1909 a bill taxing incomes in excess of $2,000 at 
 the rate of one per cent was passed by the lower house 
 but was killed in the Senate. 
 
 Tennessee. By Chapter 106, Laws of 1883, income 
 derived from shares of stock in any corporation exempt 
 by its charter from ad valorem tax, or from bonds ex- 
 empt from taxation generally, was declared taxable and 
 the rate fixed at 5 per cent. Chapter 120 of the Laws of 
 1895, Section 9, subd. 10, provided that the amount of
 
 232 INCOME TAXATION 
 
 income derived from United States bonds and all other 
 stocks and bonds not taxed ad valorem should be taxable. 
 The rate was fixed at 5 per cent. This provision is re- 
 peated in Section 8, Chapter 258, Laws of 1903, and does 
 not appear to have been repealed. 
 
 Virginia. The experiences of this state with the in- 
 come tax extend over a continuous period of 67 years. 
 During that time nearly every imaginable variation upon 
 the tax has been tried. As has been well said, "The his- 
 tory of the tax is the history of a confused mass of legis- 
 lation," and any attempt to follow out that history in 
 detail would prove wearisome and unprofitable. 
 
 Nevertheless, in spite of the complexities and imper- 
 fections of the law r s, the experience of Virginia is notable 
 in that it has probably resulted in raising a larger sum in 
 the aggregate from State income taxes than has been 
 raised by that means in any other state. I have not been 
 able to secure the statistics for all the years, but it seems 
 safe to say that a total of over three million dollars has 
 been collected. 
 
 As originally adopted in 1843 the law imposed a tax 
 of one per cent upon incomes in excess of $400 received 
 for personal services, and two and one-half per cent upon 
 interest in excess of $100 received from investments, 
 thus recognizing the distinction between "earned and un- 
 earned incomes." The principle of differentiation, as in 
 the case of North Carolina, was carried to great lengths 
 and changes were constantly being made in the rates. In 
 fact all the subsequent legislation on the subject betrays 
 the same naive assumption which is common to state in- 
 come tax laws generally, namely : that it is only necessary 
 to fix by legislative enactment the exact rates to be levied 
 and the administration of the law will take care of itself.
 
 VIRGINIA 233 
 
 In 1862 and 1863, owing to the necessities of the war 
 period a wider scope was given to the tax and the rates 
 materially raised with the result that the collections 
 reached high water mark in 1863 when they amounted to 
 $178,944.92. At this period salaries were taxed two and 
 one-half per cent on the amount in excess of $500. 
 Seventeen per cent was levied upon income from toll- 
 bridges and ferries, and ten per cent upon net profits re- 
 ceived from trade, business, use of money and the like. 
 There was also a tax upon dividends of corporations, 
 levied at the source, as in Pennsylvania. It must also be 
 remembered that the Southern Confederacy levied a gen- 
 eral income tax in 1863, with rates ranging from two per 
 cent on salaries to fifteen per cent on incomes over 
 $10,000, and sixteen and two-thirds per cent on profits 
 of joint stock companies in excess of twenty per cent. In 
 view of the devastations wrought by the war in Virginia 
 the relatively large amounts collected for income taxes at 
 this period afford a striking proof of the loyalty and de- 
 votion of the people. 
 
 Of the great number of variations which the law has 
 experienced perhaps the most notable was the change 
 made in 1866 by which a system of five schedules, cor- 
 responding somewhat w r ith those of the English income 
 tax, were adopted. Schedule D, which referred ex- 
 clusively to incomes, was divided into six sub-classes. 
 Different rates and exemptions were applied to these sub- 
 classes and, as salaries were in a separate schedule, re- 
 ceiving still different treatment, the law became very com- 
 plicated and correspondingly difficult of enforcement. 
 
 As a result the amount of collections dropped to about 
 $23,000, and in 1870 the present method of assessing and
 
 234 INCOME TAXATION 
 
 taxing incomes was introduced. At that time also the 
 somewhat hazardous plan of defining income in detail 
 was adopted. Passing by numerous changes made in the 
 law during the seventies and a few in later years, the law 
 now in force, may be summarized as follows : 
 
 A tax of one per cent is levied upon the aggregate 
 amount of income in excess of $1,000 whether received, 
 or due and not received, within the year next preceding 
 the first of February. 
 
 Income is divided into five classes : 
 
 1. All rents (except ground rents and rents-charge), 
 salaries, interest upon notes, bonds or other evidences of 
 debt * * * collected or received during the year less 
 the interest due and paid during the year. 
 
 2. All premiums on gold, silver and coupons. 
 
 3. The amount of sales of live stock and meat of all 
 kinds less the value assessed the previous year by the 
 commissioner of the revenue. 
 
 4. The amount of sales of various agricultural pro- 
 ducts (specified in detail), less all sums paid for taxes and 
 labor, fences, fertilizer, seed, etc., purchased and used 
 upon the land and the rent paid for the land if the person 
 be not the owner thereof. 
 
 5. All other gains and profits derived from any 
 source whatever. 
 
 In addition to the $1,000, the deduction mentioned 
 above, it is also provided that all losses sustained during 
 the year may be deducted, but only one deduction of 
 $1,000 can be made from the aggregate income of any 
 family, except that guardians can make a separate deduc- 
 tion of $1,000 in favor of each ward out of the income 
 of such ward.
 
 WEST VIRGINIA 235 
 
 The results which have been obtained under the Vir- 
 ginia system may be seen by the following table taken 
 from the Auditor's Reports for the respective years : 
 
 Year Income Tax Year Income Tax 
 
 1887 $38,950.84 1898 $43,204.72 
 
 1888 38,144.80 1899 54,148.38 
 
 1889 45,906.69 1900 46,023.66 
 
 1890 51,246.69 1901 59,251.55 
 
 1891 62,206.70 1902 60,356.57 
 
 1892 54,154.44 1903 64,781.39 
 
 1893 51,700.12 1904 70,953.54 
 
 1894 40,943.41 1905 77,414.23 
 
 1895 43,026.26 1906 94,291.43 
 
 1896 42,377.81 1907 122,056.77 
 
 1897 37,502.27 1908 102,810.50 
 
 West Virginia. The income tax adopted by this state 
 in 1863 was modeled after the law in force in Virginia 
 at that time. Five per cent was levied upon interest on 
 bonds of corporations, states and counties and a low pro- 
 gressive rate upon incomes received from any office or 
 employment. To a considerable extent the law was a 
 combination of income and license taxes and it was 
 amended in December, 1863, so that those liable to the 
 combined tax were exempt from the income tax. The 
 law soon became a dead letter so far as incomes were con- 
 cerned and no attempt has ever been made to revive it. 
 
 CONCLUSION. 
 
 In closing this imperfect sketch of state income taxes 
 I cannot perhaps do better than to quote a few sentences 
 from Kinsman's excellent book on the subject in which 
 he sums up his conclusions as follows : 
 
 The experience of the states with the income tax war- 
 rants the conclusion that the tax, as employed by them, has 
 been unquestionably a failure. It has satisfied neither the 
 demands for justice nor the need of revenue. The question 
 arises : Is this failure due to qualities inherent in the nature 
 of the tax, or is it the result of conditions which may be
 
 INCOME TAXATION 
 
 removed? One of the fundamental principles of taxation is 
 that the subjects of a state ought to contribute to the sup 
 port of the government in proportion to their respective 
 abilities, and it is generally agreed that these abilities are 
 best measured by income. Therefore, theoretically at least, 
 an income tax is unquestionably the fairest system yet pro- 
 posed. Throughout the history of the tax in the several 
 states the opposition has never seriously attacked it from a 
 theoretical standpoint. * * * 
 
 A careful study of the history of the tax leads one to 
 the conclusion that the failure has been due to the adminis- 
 tration of the laws. This conclusion is borne out by both 
 the admissions of the advocates and the assertions of the 
 opponents of the tax, and is corroborated by the reports of 
 tax commissions. * * * 
 
 As the result of our study we conclude that the state in- 
 come tax has been a failure, due to the failure of administra- 
 tion, which, in turn, may be attributed to four causes the 
 method of self-assessment, the indifference of state officials, 
 the persistent effort of the taxpayers to evade the tax, and 
 the nature of the income. The tax can not be successful 
 so long as taxpayers desirous of evading taxation are given 
 the right of self-assessment. Since all attempts to change 
 the method of self-assessment have failed and the nature of 
 industry in the states is at present such as to make impos- 
 sible the assessment of a general income tax at the source, 
 we are forced to the conclusion that, even though no con- 
 stitutional questions should arise, failure will continue to 
 accompany the tax until our industrial system takes on such 
 form as to make possible the use of some method other than 
 self-assessment.
 
 CHAPTER XII. 
 
 UNITED STATES. 
 FEDERAL INCOME TAXES. 
 
 A. THE CIVIL WAR INCOME TAX. 
 
 The first and practically the only experience of the 
 Federal Government with income taxation occurred dur- 
 ing the period of 1861-1872. * The so-called Civil War 
 income tax of that period presents many interesting 
 features, but should not be looked upon as affording any 
 reliable criterion of what could be accomplished by 
 
 *. A tax on carriages was levied in 1796, but the Supreme Court, 
 in the now famous case of Hylton vs. the United States, 3 Dallas, 
 171, held that this was not a direct tax, but an excise. The first di- 
 rect tax was one levied on houses in 1798; but it could hardly be 
 called an income tax, although it may have aimed to reach incomes 
 upon the assumption that the value of a man's house is a fair index 
 of his ability to pay. The law consisted of a progressive percentage 
 tax in accordance with the following scale : 
 Houses valued from $ 100 to $ 1,000 were taxed at the rate of 0.2% 
 
 1.000 
 3,000 
 6,000 
 10,000 
 
 3,000 
 6,000 
 10,000 
 15,000 
 
 
 t 
 
 i 
 
 
 i 
 
 
 
 0.4% 
 0.5% 
 0.6% 
 0.7% 
 
 15,000 
 20,000 
 30,000 i 
 
 20,000 
 30,000 
 
 ipwards 
 
 
 t 
 
 
 t 
 
 < 
 
 < 
 
 0.8% 
 0.9% 
 1. % 
 
 An income tax designed to raise $3,000,000 was proposed by Sec- 
 retary of the Treasury Dallas, January 17, 1815, but his suggestion 
 was not adopted. See American State Papers, Vol. II, p. 887.
 
 238 INCOME TAXATION 
 
 similar laws in times of peace. It is impossible to esti- 
 mate the extent to which the patriotic impulses of the 
 northern people contributed to the comparative success 
 of the tax; and it is impossible to say what the results 
 of the law would have been if it had been less crudely 
 drawn and had not been subject to constant changes. It 
 must be remembered that there was not one statute which 
 could be called the Income Tax Law% but a succession of 
 laws and amendments varying so widely as to show con- 
 clusively their tentative and experimental character. The 
 first law, which served in some respects as a model to all 
 that followed, was evidently drawn in great haste by men 
 who were unfamiliar with the subject. 
 
 On July 4-, 1861, Congress was convened in extra- 
 ordinary session by President Lincoln. Secretary Chase 
 in his report on the finances was able to make provision 
 for all of the amount then supposed to be needed, except 
 twenty million dollars which he proposed to raise "by a 
 direct tax, or from internal duties or excise, or both." 
 On July 16, Mr. Thaddeus Stevens, chairman of the 
 House Committee on Ways and Means, reported a 
 revenue bill which contained a provision for a direct tax 
 of thirty million dollars to be apportioned to the states on 
 the basis of population; and on the following day sub- 
 mitted a resolution which was adopted, providing that all 
 debate on the bill by the committee should cease in one 
 hour after its consideration was commenced, after which 
 the committee should proceed to vote on amendments. 
 
 The proposition for a direct tax met with much op- 
 position and an income tax was suggested as a substitute. 
 The bill was amended so as to reduce the direct tax from 
 $30,000,000 to $20,000,000 and provision was made for
 
 CIVIL WAR INCOME TAX 239 
 
 a tax of 3 per cent on all income over $600 after which 
 the bill was passed July 29, 1861. In the meantime how- 
 ever the matter was under consideration in the Senate. 
 Mr. Simmons, chairman of the Committee on Finance, 
 offered an amendment imposing a tax of 5 per cent on 
 income over $1,000. This amendment was accepted with 
 but little debate, Mr. Simmons stating that the Commit- 
 tee had followed the law, rule and practice in England 
 where a similar tax had been in force for fifty years. 2 As 
 the House Bill and the Senate amendment were passed 
 upon the same day the whole matter went to a Committee 
 of Conference which, after brief debate, adopted a com- 
 plete substitute for the original House Bill. This sub- 
 stitute included some of the Senate provisions in a modi- 
 fied form. The report was adopted on the same day by 
 the Senate by a vote of 34 yeas to 8 nays and the act be- 
 came a law August 5, 1861. 3 
 
 While the law thus hastily passed was superseded by 
 a subsequent act before it went into operation, it is in- 
 teresting as indicating the views of Congress at that time 
 as to the form which an income tax should take. It was 
 not a separate and distinct law, but only a portion of the 
 general revenue act, and the most important portion 
 (49) read as follows: 
 
 That from and after the first day of January next there 
 shall be levied, collected and paid, upon the annual income 
 of every person residing in the United States, whether such 
 income is derived from any kind of property, or from any 
 profession, trade, employment, or vocation carried on in the 
 
 2 . Mr. Simmons was mistaken, as the English Income Tax law 
 had been in force only eighteen years and one could search the 
 American Income Tax law in vain for any point of resemblance 
 to the English law. 
 
 3 . 12 Stat. at Large Ch. 45, p. 309, 49-51.
 
 240 INCOME TAXATION 
 
 United States or elsewhere, or from any other source, if 
 such annual income exceeds the sum of $800, a tax of 3 
 per centum on the amount of such excess of such income 
 above $800: Provided, that upon such portion of said in- 
 come as shall be derived from interest upon Treasury notes 
 or other securities of the United States, there shall be levied, 
 collected and paid a tax of i^ per centum. Upon the in- 
 come, rents or dividends accruing upon any property, securi- 
 ties or stocks owned in the United States by any citizen of 
 the United States residing abroad, there shall be levied, 
 collected and paid a tax of 5 per centum, excepting that 
 portion of said income derived from interest on Treasury 
 notes and other securities of the Government of the United 
 States, which shall pay rj per centum. The tax herein pro- 
 vided shall be assessed upon the annual income of the per- 
 sons herein named for the year next preceding the time for 
 assessing said tax, to- wit: the year next preceding the ist 
 of January, 1862, and the said taxes, when so assessed and 
 made public, shall become a lien on the property or other 
 sources of said income for the amount of the same, with the 
 interest and other expenses of collection until paid : Pro- 
 vided, that in estimating said income all National, State or 
 local taxes, assessed upon the property from which the in- 
 come is derived, shall be first deducted. 
 
 As Congress was to meet again in December and it 
 was generally understood that some modifications were 
 likely to be made in the law, the Secretary of the Treas- 
 ury took no steps towards its collection and in his annual 
 report commended the "prudent forecast which induced 
 Congress to postpone another year the necessity of tak- 
 ing steps for the practical enforcement of the law," thus 
 affording "happily the opportunity of revision and modi- 
 fication." He further recommended that the direct tax 
 be increased to the original sum of thirty million dollars 
 and that fifty million dollars be raised by internal taxa- 
 tion without resorting to an income tax. This report 
 was presented on the 9th of December, 1861, but no ac- 
 tion seems to have been taken until March 12, 1862, when 
 the Committee of Ways and Means reported an internal
 
 CIVIL WAR INCOME TAX 24! 
 
 revenue bill, which included a tax of 3 per cent on in- 
 comes above $600. It was estimated that the income tax 
 thus provided for would produce about five million dol- 
 lars of revenue. The tax seems to have been levied as a 
 sort of dubious experiment and the attitude of Congress 
 toward it was probably reflected to a considerable extent 
 by Senator Morrill, who, in reporting the measure, said : 
 
 The income duty is one perhaps of the least defensible 
 that, on the whole, the Committee of Ways and Means con- 
 cluded to retain or report. The objection to it is that nearly 
 all persons will have been already once taxed upon the 
 sources from which this income is derived. There are few 
 persons in the country who have any fixed incomes for a 
 term of years. The income tax is an inquisitorial one at 
 best; but upon looking at the considerable class of State 
 officers, and the many thousands who are employed on a 
 fixed salary, many of whomT would i not contribute a penny 
 unless called upon through this tax, it has been thought 
 best not to wholly abandon it. Ought not men, too, with 
 large incomes to pay more in proportion to what they have 
 than those with limited means who live by the work of their 
 hands or that of their families ? 
 
 The revenue bill as proposed by the House did not 
 make any material change in the law of 1861, but when 
 the bill reached the Senate, Mr. Fessenden, chairman of 
 the Committee on Finance proposed an amendment limit- 
 ing the 3 per cent rate to incomes under $10,000 and mak- 
 ing the rate 5 per cent on incomes over $10,000 and 7^ 
 per cent on those over $50,000, the exemption being fixed 
 at $600. These higher rates, which mark the beginning 
 of the progressive principle, were probably deemed neces- 
 sary in view of the fact that the assessment of the direct 
 tax had been suspended for two years. The act was 
 finally passed with a provision repealing the previous law.
 
 242 INCOME TAXATION 
 
 It was signed July 1, 1862, 4 and was therefore the first 
 Federal income tax law to go into actual operation. The 
 first section (90) followed to some extent the wording 
 of the previous act, except that "annual gains, profits or 
 income" was substituted for "annual income," the word 
 "tax" was changed to "duty," and citizens residing 
 abroad who were in the employ of the United States 
 government were exempted from the 5 per cent tax. The 
 rate on incomes generally which had been fixed by the 
 Senate at iy 2 per cent on incomes over $10,000, was 
 modified in Committee of Conference so that the law, as 
 finally passed, provided for 3 per cent on incomes from 
 $600 to $10,000 and if the amount of income exceeded 
 $10,000 "a duty of 5 per centum on the amount thereof 
 exceeding $600." The effect of this provision was to 
 exempt $600 from incomes above as well as below 
 $10,000; though, as in the previous act, the $600 exemp- 
 tion was not granted as to the 5 per cent tax on incomes 
 of citizens residing abroad. 
 
 The act of 1861 apparently referred to gross income, 
 but section 91 of the act of 1862 provided that, in esti- 
 mating the annual gains, profits, or income, there should 
 be deducted: 
 
 a. National, state and local taxes upon the property or 
 source of income. 
 
 b. All gains, profits, or income derived from salaries of 
 officers, or payments to persons in the civil, military, naval, 
 or other service of the United States, including senators, 
 representatives, and delegates in Congress, above six hun- 
 dred dollars, or derived from interest or dividends on stocks, 
 
 4 . 12 Statutes at Large. Ch. 119, p. 473, 90-93. The earlier 
 portions of this chapter constitute the Tariff Act. 81, 82 and 86 
 contain provisions for collecting the tax on dividends, etc., at the 
 source.
 
 CIVIL WAR INCOME TAX 243 
 
 capital, or deposits in any bank, trust company, or savings 
 institution, insurance, gas, bridge, express, telegraph, steam- 
 boat, ferry-boat, or railroad company, or corporation, or on 
 any bonds or other evidences of indebtedness of any rail- 
 road company, or other corporation, which shall have been 
 assessed and paid by said banks, trust companies, savings 
 institutions, insurance, gas, bridge, telegraph, steamboat, 
 ferry-boat, express, or railroad companies, as aforesaid, or 
 derived from advertisements, or on any articles manu- 
 factured, upon which specific, stamp or ad valorem duties 
 shall have been directly assessed or paid. 
 
 This sentence is given in full because its meaning is 
 somewhat obscure. The construction placed upon it by 
 the Commissioner of Internal Revenue was as follows: 5 
 
 The following deductions will be made from the aggre- 
 gate income of each person and the tax assessed upon the 
 .remainder, viz. : * * * Salaries of officers, or payments 
 to persons in the service or employment of the United 
 States from which a deduction of three per cent has been 
 made by the disbursing officers of the government. 
 
 Interest or dividends on stock, capital or deposits in any 
 bank, trust company or savings institution, insurance, rail- 
 road company or corporation, from which interest or 
 dividends a duty of three per cent, shall have been withheld 
 by the officers of such companies, corporations or associa- 
 tions ; interest from any bonds or other evidence of in- 
 debtedness of any railroad company or other corporation 
 from which a duty of three per cent, shall have been de- 
 ducted by the officers of such company or corporation ; and 
 receipts derived from advertisements on which a duty shall 
 have been assessed or paid. Also the sum of $600. 
 
 The law further provided that upon income derived 
 from notes, bonds or other securities of the United 
 States "there shall be levied, collected and paid a duty 
 not exceeding one and one-half of one per centum, any- 
 thing in this act to the contrary notwithstanding." It is 
 not clear whether the exemption of $600 was to be al- 
 lowed in such a case or not, but as a matter of practice it 
 
 See Boutwell, Direct and Excise Taxation in the U. S., p. 197.
 
 244 INCOME TAXATION 
 
 was. The lower rate on United States bonds was no 
 doubt designed to make them more attractive to investors. 
 
 The act further provided that "duties on incomes" 
 should be payable on or before June 30, 1863, and each 
 year thereafter until and including the year 1866. The 
 remainder of the act related to the duties of the collectors 
 in assessing and collecting the tax. 
 
 It is significant that throughout the law the word 
 "duty" is constantly used instead of "tax," the evident 
 intent being to distinguish it clearly from the $20,000,000 
 direct tax levied and apportioned by the law of Aug. 6, 
 1861. 
 
 The next revision of the income tax law is found in 
 the general revenue act of June 30, 1864. 6 The bill at 
 first provided for a tax of 5 per cent on all incomes over 
 $600, but the House voted a rate of 7^ per cent on 
 amounts over $10,000 and 10 per cent on the excess over 
 $25,000. This proposition gave rise to much discussion 
 as to the equity and justice of a progressive tax Senator 
 Sumner being among those who favored the progressive 
 principle. When the bill finally emerged from the Com- 
 mittee of Conference it provided for a 5 per cent rate 
 from $600 to $5,000, 7^ per cent from $5,000 to $10,000 
 and a 10 per cent rate for all incomes above the latter 
 amount. It also made numerous changes in the pro- 
 visions for the administration of the law and extended its 
 operation "until and including the year 1870 and no 
 longer." The bill was passed in this form, but before it 
 went into effect it was amended by the act of March 3, 
 1865, 7 which abolished the l l / 2 per cent rate and pro- 
 
 13 Stat. at Large Ch. 173, p. 281, 116-123. 
 13 Stat. at Large, Ch. 78, p. 479, 1.
 
 CIVIL WAR INCOME TAX 245 
 
 vided for a tax of 10 per cent on all incomes over $5,000. 
 These rates marked the highest point fixed by any of the 
 laws and amendments. 
 
 In July, 1864, Congress by a joint resolution levied a 
 supplementary income tax for the purpose of raising 
 bounties. This tax applied to income of 1863 and con- 
 sisted of a levy of 5 per cent on all incomes over $600. 
 The resolution was passed July 4, 1864, 8 and the tax was 
 to be assessed October 1, 1864. As it was additional to 
 other taxes it had the effect to raise the total rate for in- 
 come received in 1863 to 8 per cent on incomes between 
 $600 and $10,000 and 10 per cent on incomes over 
 $10,000. 
 
 The law of June 30, 1864, was amended by the acts 
 of March 3, 1865, March 10, 1866, and July 13, 1866, 
 the amendments referring more specifically to details of 
 administration. 
 
 In the latter part of the year 1866, it was evident that 
 the finances of the government were in such a condition 
 as to permit a reduction in taxation, and the act of March 
 2, 1867, 9 raised the exemption to $1,000 and provided 
 for a uniform 5 per cent rate on all income in excess of 
 that sum. 
 
 In 1870 the question of continuing the income tax 
 was raised and the subject received more attention than 
 had been accorded to it at any previous period. This was 
 partly due to the report of special commissioner David 
 A. Wells, who recommended the reduction of the rate to 
 3 per cent, claiming that fully as much could probably 
 be raised at the lower figure as on a 5 per cent basis. He 
 
 8 . 13 Stat. at Large, p. 417. 
 
 9. 14 Stat. at Large, Ch. 169, p. 477.
 
 246 INCOME TAXATION 
 
 proposed that the amount of exemption should be fixed 
 at $1,000 with an additional exemption of not to exceed 
 $200 for house rental. 10 The attitude of Mr. Wells at 
 this period is interesting as contrasted with his bitter at- 
 tack upon the income tax of 1894. 11 Among the striking 
 statistics which he submitted was the fact that the tax 
 was paid in the year 1868 by only 250,000 persons out of 
 the entire population of almost 40,000,000. There was 
 a strong majority in favor of the retention of the tax in 
 the House, while the Senate was very evenly divided. 
 Among those who favored the tax Senator Sherman took 
 the most prominent part. One of his arguments was that 
 if the law was not retained there would be a deficit which 
 would have to be met by some other form of taxation. 
 This is the argument which has been so often used in 
 defense of the English income tax. The Senate first 
 agreed to strike out the income tax by a vote of 34 to 23. 
 This vote was taken in committee of the whole ; and when 
 sitting in ordinary session the Senate, by a vote of 26 to 
 22, concurred in the action of the committee. A motion 
 to reconsider was carried by a vote of 26 to 25 ; certain 
 amendments were restored to the bill by a vote of 26 to 
 22 ; and a final motion to strike out the amendments was 
 lost by a tie vote. It will thus be seen that the sentiment 
 against the bill was very strong in the Senate. The op- 
 position in the House also became more powerful, as is 
 shown by the fact that an effort which was made to re- 
 peal the bill in 1871 only lacked one vote of being suc- 
 cessful. The income tax expired by virtue of the limita- 
 
 10 . Cf. Bankers' Magazine, Vol. 48, pp. 428-435. 
 
 ai . David A. Wells. "An Income Tax: is it desirable?" The 
 Forum, Vol. 17, pp. 1-13. Mar. 1894. "Is the existing: income tax 
 unconstitutional?" The Forum, Vol. 18, pp. 536-542, Jan., 1895.
 
 CIVIL WAR INCOME TAX 247 
 
 tion imposed by Section 6 of the act of July 14, 1870, 12 
 which levied a tax for the years 1870 and 1871 and no 
 longer. 13 It should be stated however that collections 
 continued to be made under the law until the close of the 
 year 1873. 
 
 The foregoing is a condensed and therefore somewhat 
 incomplete review of the history of the legislation in 
 reference to Federal income taxes throughout the period 
 they were in force. 14 A clearer view of what was at- 
 tempted by the various laws may perhaps be obtained by 
 taking up separately some of the more important features. 
 
 Rates. The act of August 5, 1861, which provided 
 for a tax of 3 per cent on incomes of over $800, may be 
 passed over as it was superseded by the law of 1862. 
 
 By the law of July 1, 1862, the rate 
 
 on incomes above $ 600 up to $10,000 was 3% 
 
 " 10,000 (less the $600 exemption) 5% 
 
 from railroad bonds 3% 
 
 banks, trust companies, savings institutions and in- 
 surance companies 3% 
 
 from insurance companies (on gross receipts) 1% 
 
 " salaries of United States officials 3% 
 
 " advertisements (in papers having more than 
 
 2,000 circulation) 3% 
 
 " securities and stocks in United States owned by 
 
 citizens abroad 3% 
 
 " interest on bonds, notes and securities of the 
 United States l l / 2 % 
 
 12 . 16 Stat. at Large, Ch. 255, p. 257, 6-17. 
 
 13 . The five per cent tax on dividends, etc., expired by limita- 
 tion Aug. 1, 1870, and as the law extending the time as to the 2^2% 
 tax did not go into effect until Jan. 1, 1871, the 5% tax was not levied 
 for 1870. 
 
 14 . For an excellent and more complete review of the subject 
 see The Civil War Income Tax, by Joseph A. Hill, in Vol. VIII of 
 Quarterly Journal of Economics, p. 416. 
 
 An analysis of such portions of the various acts as were em- 
 bodied in the subsequent law of 1894, is given in "A Treatise on the 
 Federal Income Tax," by Foster and Abbott, 1895. See also Gould 
 and Tucker, "The Federal Income Tax Explained," 1894.
 
 248 INCOME TAXATION 
 
 The Joint Resolution of July 4, 1864, had the effect 
 to raise the personal income taxes for the year 1863 fixed 
 at 3 per cent and 5 per cent to 8 per cent and 10 per cent 
 respectively. 
 
 The law of June 30, 1864, provided the following 
 rates : 
 
 Over $ 600 and not exceeding $ 5,OOQ 5 % 
 
 5,000 " " 10,000 iy 2 % 
 
 10,000 ..10 % 
 
 Railroad, canal and steamboat companies, etc. 
 
 (on gross receipts) V/2% 
 
 Express Companies (on gross receipts) 3 % 
 
 Insurance " " " ; ...,\ l /2% 
 
 Telegraph " 5 % 
 
 Gross receipts of theaters, operas,circuses, etc.. ..2 % 
 
 Bank Deposits 1/24 of 1% 
 
 Lotteries (on gross receipts) 5 % 
 
 Advertisements 3 % 
 
 Stock dividends in banks, insurance companies... 5 % 
 Salaries of United States officials 5% 
 
 The law of March 3, 1865, fixed the rates on personal 
 income as follows : 
 
 Above $ 600 and not exceeding $5,000 5 % 
 
 $5,000 10% 
 
 The law of March 2, 1867, fixed the tax on incomes 
 of 
 
 Over $1,000 at 5 % 
 
 The law of July 14, 1870, levied a tax on incomes 
 
 Over $2,000 of 
 
 And on interest on corporate bonds and dividends 
 of companies mentioned above 
 
 What reckoned as income. In the act of 1862 the tax 
 was levied upon "the annual gains, profits or income of 
 every person residing in the United States, whether de- 
 rived from any kind of property, rents, interest, 
 dividends, salaries, or from any profession, trade, em- 
 ployment or vocation carried on in the United States, or 
 elsewhere, or from any other source whatever."
 
 CIVIL WAR INCOME TAX 249 
 
 The law of 1864 followed the same form; but, instead 
 of specifying a separate rate for interest upon notes, 
 bonds and other securities of the United States, provided 
 that such interest should be treated as general income. 
 
 The law of 1867 added to the above definition of in- 
 come: 
 
 Profits realized within the year from sales of real estate 
 purchased within the year or within two years previous to 
 the year for which income was [is] estimated; interest re- 
 ceived or accrued upon old [all] notes, bonds and mort- 
 gages, or other forms of indebtedness bearing interest, 
 whether paid or not, if good and collectable, less the in- 
 terest which has become due from said person during the 
 year ; the amount of all premium on gold and coupons ; the 
 amount of sales of live stock, sugar, wool, butter, cheese, 
 pork, beef, mutton, or other meats, hay and grain, or other 
 vegetable or other production, being the growth or produce 
 of the estate of such person, not including any part thereof 
 consumed directly by the family ; all other gains, profits, and 
 income derived from any source whatever, except the rental 
 value of any homestead used or occupied by any person or 
 by his family in his own right, or in the right of his wife ; 
 and the share of any person of the gains and profits of all 
 companies, whether incorporated or partnership, who would 
 be entitled to the same, if divided, whether divided or other- 
 wise, except the amount of income received from institutions 
 or' corporations whose officers, as required by law, withhold 
 a percentum of the dividends made by such institutions, and 
 pay the same to the officer authorized to receive the same ; 
 and except that portion of the salary or pay received for 
 services in the civil, military, naval, or other service of the 
 United States, including senators, representatives and dele- 
 gates in Congress, from which the tax has been deducted. 
 
 It has seemed worth while to give this definition in 
 full as it has been followed closely in the law of 1894, 
 and the income tax laws of some states. 
 
 Exemptions and Deductions. As may be seen from 
 the statement of rates the exemptions were successively 
 $600, $1,000 and $2,000. By the act of 1862 certain 
 national, state and local taxes, as well as income, the tax 
 upon which had been collected at the source, could be de-
 
 250 INCOME TAXATION 
 
 ducted from total taxable income. The amendment of 
 March 3, 1863, provided that in estimating income the 
 amount actually paid by any person for the rent of the 
 dwelling house or estate on which he resided could be 
 deducted from his income. This provision was extended 
 by the law of 1864, so that "the amount paid by any per- 
 son for the rent of the homestead used or occupied by 
 himself or his family, and the rental value of any home- 
 stead used or occupied by any person or by his family in 
 his own right, or in the right of his wife" should not be 
 treated as income. The object of this provision was to 
 place owners and renters of houses on an equal footing; 
 but the same end could have been obtained and more tax 
 collected by following the plan usually adopted in other 
 countries of not allowing any deduction for rent and 
 requiring the owner of a home to account for its rental 
 value as income. By the act of 1862, the taxes which 
 could be deducted were limited to those paid upon sources 
 of income; but the law of 1867 provided for a deduction 
 of "all national, state, county and municipal taxes paid 
 within the year." 
 
 Among other deductions allowance was made for "the 
 losses actually sustained during the year arising from 
 fires, shipwrecks or incurred in trade and debts ascer- 
 tained to be worthless, but excluding all estimated de- 
 preciation of value." The cost of ordinary or usual re- 
 pairs could be deducted, but amounts paid for new build- 
 ings or permanent improvements, or other betterments 
 made to increase the value of property were not to be 
 reckoned. 15 
 
 15 . For a more detailed account of deductions and numerous 
 rulings thereon see Foster and Abbot, a Treatise on the Federal In- 
 come Tax, 1895.
 
 CIVIL WAR INCOME TAX 25! 
 
 Administration. The provisions made for adminis- 
 tering the law seem very crude, incomplete and inade- 
 quate when compared with similar provisions in other 
 countries ; but it must be remembered that great advances 
 have been made in the administration of income tax dur- 
 ing the past fifty years. The administration of the Civil 
 War Income Tax devolved upon the assessors of Internal 
 Revenue, who were under the general supervision of the 
 Commissioner of Internal Revenue. The time for assess- 
 ment was originally fixed as the first of May and the tax 
 became due on or before June 30; but these dates were 
 changed by the act of 1867, to March 30 and April 30 re- 
 spectively. The penalties provided for were at first an 
 addition of 5 per cent to the amount of the tax remain- 
 ing unpaid; afterwards 10 per cent; and by the law of 
 1867, 5 per cent, with interest at one per cent a month 
 until the tax was paid. All persons were required to 
 make and render a return of the amount of their income, 
 gains and profits which was to be verified by the oath or 
 affirmation of the party rendering it. 16 In case of neglect 
 or refusal to make such return, or in case of a fraudulent 
 declaration, the assessor was authorized to prepare a re- 
 turn "according to the best information" he could obtain 
 "by the examination of such person or his books or ac- 
 counts, or any other evidence," and in such case 50 per 
 cent was added to the tax due on the list as made out by 
 the assessor. In all cases of false or fraudulent lists or 
 returns however the penalty was 100 per cent. The right 
 
 16 . When the tax first went into effect the Commissioner of 
 Internal Revenue gave instructions that returns should not be made 
 public; but, there being no law against publicity in this respect, 
 newspaper enterprise soon led to the printing of the lists, and this 
 practice, which was thought to be conducive to more complete re- 
 turns, was kept up until forbidden by the law of 1870.
 
 252 
 
 INCOME TAXATION 
 
 of appeal was granted from the decision of the assistant 
 assessor to the district assessor and from the latter to 
 the Commissioner of Internal Revenue, whose judgment 
 in the matter was final. 
 
 Results. The numerous changes in rates and the 
 manner in which collections for taxes levied in any one 
 year were made in subsequent years, render it difficult to 
 trace the exact yield of the tax for any particular year. 
 From the standpoint of annual collections, however, the 
 following statement and comparison can be made : 
 
 Year 
 
 1863 
 
 1864 
 
 1865 
 
 1866 
 
 1867 
 
 1868 
 
 1869 
 
 1870 
 
 1871 
 
 1872 
 
 1873 
 
 Total Income Tax 
 $ 2,741,858 
 20,294.731 
 60,979,329 
 73,434,709 
 66,014,429 
 41,455,598 
 34,791,855 
 37,775,873 
 19,162,650 
 14,436,861 
 5,062,311 
 
 Total 
 
 Internal Revenue 
 $ 41.003,192 
 117,145,748 
 211,129,529 
 310,906,984 
 265,920,424 
 191,180,564 
 160,039,344 
 185,235,867 
 144,011,176 
 131,770,946 
 114,075,486 
 
 Percentage of 
 
 Income Tax to 
 
 total Revenue 
 
 6.68 
 
 17.3 
 
 28.3 
 
 23.6 
 
 24.8 
 
 21.6 
 
 21.7 
 
 20.3 
 
 13.3 
 
 10.5 
 4.4 
 
 Total $376,150,204 $1,872,419,260 Average 20.% 
 
 The following are the amounts collected in each of 
 the states, omitting the income tax collected on salaries 
 of United States officials and a portion of the Special In- 
 come Tax of 1864, as to the apportionment of which be- 
 tween the states we are not informed :" 
 
 17 . Computed from table on last page of memorandum sub- 
 mitted April 11, 1910, by Joseph H. Choate and others to the Legis- 
 lature of the State of New York in opposition to the 16th Amend- 
 ment. This table does not include $28,929,312 which, according to 
 Dr. Hill, was collected in 1866, from the Special Income Tax of 
 1864, and neither of the tables entirely agrees with the statistics fur- 
 nished by the Secretary of the Treasury, which are found in Vol. 26, 
 Part III, of the Congressional Record on page 1812 (paging of daily 
 issues)* under proceedings of Jan. 31, 1894. Secretary Carlisle 
 gives the total amount collected from the Civil War Income Tax as 
 $347,220,897.86. By a table attributed to Senator Sherman found in
 
 CIVIL WAR INCOME TAX 253 
 
 Alabama $ 982,244.62 
 
 Arizona 26,683.73 
 
 Arkansas 218,225.70 
 
 California 10,089,645.91 
 
 Colorado 370,669.33 
 
 Connecticut 9,412,456.91 
 
 Dakota 4,277.12 
 
 Delaware 1,159,877.19 
 
 District of Columbia 1,891,688.63 
 
 Florida 115,097.60 
 
 Georgia 1,735,509.47 
 
 Idaho 160,783.19 
 
 Illinois 16,117,899.54 
 
 Indiana 5,465,092.63 
 
 Iowa 2,268,722.97 
 
 Kansas 590.858.51 
 
 Kentucky 6,649,125.86 
 
 Louisiana 2,772,947.48 
 
 Maine 2,140,077.29 
 
 Maryland 9,712,633.07 
 
 Massachusetts 41,272,296.39 
 
 Michigan 4,532,645.31 
 
 Minnesota 647,965.64 
 
 Mississippi 392,682.03 
 
 Missouri 7,011,635.64 
 
 Montana 185,845.88 
 
 Nebraska 242,729.86 
 
 Nevada 693,124.45 
 
 New Hampshire 1,523,091.56 
 
 New Jersey 12,946,168.80 
 
 New Mexico 125,771.65 
 
 New York 104,330,088.10 
 
 North Carolina 357,661.75 
 
 Ohio 22,429,587.51 
 
 Oregon 782,341.66 
 
 Pennsylvania 47,463,886.81 
 
 Rhode Island 6,083,854.39 
 
 South Carolina 642,206.26 
 
 Tennessee 1,845,352.08 
 
 Texas 739,600.62 
 
 Utah 148,039.20 
 
 Vermont 1,303,035.48 
 
 Virginia 1,253,976.14 
 
 Washington 147,830.41 
 
 West Virginia 978,992.33 
 
 Wisconsin 2,877,842.99 
 
 Wyoming 11,834.63 
 
 $332,854,604.42 
 
 Vol. 26 of the Congressional Record, Part 9, on page 7883 (daily 
 paging), June 22, 1894, the total amount is given as $346,967,388.12. 
 * (There is a wide divergence between the paging of the daily issues 
 of the Congressional Record of this period and that of the bound 
 volumes. Our references are to the pages of the daily issues.)
 
 254 INCOME TAXATION 
 
 Upon the basis of sources from which the income 
 taxes were collected the following classification may be 
 made : 
 
 3 % Tax on incomes $600 to $10,000 (Years '63, '64 and 
 
 '65) ' $ 17,814,170 
 
 5 % Tax on incomes over $10,000 (Years '63, '64 and 
 
 ' 65 ) 16,494,961 
 
 5 % Tax on incomes $600 to $5,000 (Years '65, '66, 
 
 > 67 ) 49,139.423 
 
 10 % Tax on incomes over $5,000 (Years '65, '66, '67) . . 60,851,011 
 
 5 % Tax on incomes $1,000 (Years '67 to '71) 103,787,865 
 
 2 l /2% Tax on incomes $2,000 (Years '71, '72, '73) 16,097,921 
 
 5 % of income from property of citizens residing abroad 
 
 (Years '63, '64, '65) 230,470 
 
 1^2% income from interest on United States securities 
 
 (Years '63, '64, '65) 212,413 
 
 Bank dividends and surplus 27,854,024 
 
 Bank profits undivided 1,279,690 
 
 Canal Companies' dividends 1,785,812 
 
 Insurance Companies' dividends 5,689,070 
 
 Railroad Companies' dividends 21,416,738 
 
 Interest on bonds 9,987,844 
 
 Turnpike Companies' dividends 237,324 
 
 Salaries United States officials 13,889,604 
 
 Special Income Tax of 1864 29,381,862 
 
 Total $376,150,202 
 
 As to the number of persons assessed, the statistics 
 are not obtainable for the first three years. The total 
 number for the year 1866 was 460,170, which was no 
 doubt the largest number reached in any year. Mr. 
 Joseph A. Hill has computed the numbers for each sub- 
 sequent year as approximately : 
 
 . 1867 266,135 1870 276,661 
 
 1868 254.617 1871 74,775 
 
 1869 272,843 1872 72,949 
 
 As the population of the United States at this period 
 was about 40,000,000 it will be seen that the number of 
 persons who paid income tax in 1866, was a little over 
 one per cent of the population, while in the later years it 
 varied from two-thirds of one per cent to less than one- 
 fifth of one per cent.
 
 CIVIL WAR INCOME TAX 255 
 
 For the year 1867 in which the statistics appear to be 
 most complete and reliable Mr. Hill has classified the tax- 
 payers as follows : 18 
 
 Number returning incomes : 
 
 Over $ 1,000 and not over $ 1,400 101,219 
 
 1,400 " " " 2,000 68,680 
 
 2,000 " " " 3,000 40,899 
 
 3,000 " " " 11,000 46,055 
 
 11,000 9,282 
 
 Another classification made on the basis of amount 
 of tax paid by each individual in 18C8 is as follows: 
 
 Number who paid tax of $ 20 100,558 
 
 " ' " " 20 to $ 50 55,949 
 
 " " " " 50 " 100 38,957 
 
 " " 100 " 200 51,188 
 
 " " " " over 200 7,965 
 
 It has been estimated upon the basis of these figures 
 that only twenty- four thousandths of one per cent of the 
 population in that year paid taxes on incomes of more 
 than $4,000. It also appears that the amount collected in 
 that year from income taxes was only nineteen one-hun- 
 dredths of one per cent of the total assessed valuation. 19 
 
 Considered geographically and adopting the old 
 method of grouping the States, it appears that 
 
 the Middle States paid 53.1% of the tax. 
 
 the New England States " 18.4% " " 
 
 the Western States " 19.2% " " " 
 
 the Southern States " 5.6% " " " 
 
 the Pacific States " 3.4% " " <; 
 
 Total 100% 
 
 It is obvious that these proportions would be greatly 
 changed under present conditions. The small amount 
 
 18 . The Civil War Income Tax by Joseph A. Hill. Quarterly 
 Journal of Economics, Vol. VIII. No. 4. July 1894. 
 
 19 . Estimate of the probable or possible revenue under the pro- 
 posed income tax (of 1894) by Worthington C. Ford, Chief of the 
 Bureau of Statistics of the Treasury Department, dated April 3, 1894. 
 Senate Miscellaneous Documents, Vol. 5, No. 232.
 
 256 INCOME TAXATION 
 
 contributed by the Southern states is of course attribut- 
 able to the fact that the taxes could not be collected dur- 
 ing the war, and for some years afterwards conditions 
 were very unfavorable to income taxation. That these 
 conditions have now changed is evidenced by the census 
 report of 1904, which shows that the Southern States 
 have about one-eighth the wealth of the country. 
 
 It is evident from the above figures that the adminis- 
 tration of the tax was very ineffective and it seems prob- 
 able that not more than one-tenth of the actual taxable 
 income of the country was reached. As was said by 
 Senator Morrill, on the floor of Congress, the income tax 
 was after all but little more than the amount which each 
 individual chose to pay on his own estimate of his in- 
 come. It is probable that many conscientious and 
 patriotic recipients of small incomes made honest re- 
 turns; but it is certain that many persons enjoying very 
 large incomes found methods and excuses for evading 
 the tax. It is unfortunate that the first experience of our 
 Federal government with an income tax was surrounded 
 by conditions which render it unsafe to make any of the 
 deductions ordinarily to be drawn from a fiscal experi- 
 ment of that character. 
 
 B. THE FEDERAL INCOME TAX OF 1894. 
 
 The second attempt on the part of the Federal 
 government to levy a general income tax was rendered 
 nugatory by decisions of the Supreme Court of the 
 United States holding the law to be unconstitutional. 
 These decisions were of such far-reaching importance in
 
 INCOME TAX LAW OF 1894 257 
 
 their relation to Federal income taxes that a brief refer- 
 ence to the law and the construction placed upon it seems 
 necessary. 
 
 The first mention of the tax is found in President 
 Cleveland's message of December 4, 1893, in which, 
 while referring to the tariff bill, he said, "The commit- 
 tee, 20 after full consideration and to provide against the 
 temporary deficiency which may exist, before the busi- 
 ness of the country adjusts itself to the new tariff 
 schedules, have wisely embraced in their plan a few addi- 
 tional internal revenue taxes, including a small tax upon 
 incomes derived from certain corporate investments." 
 
 It would seem that the President was mistaken, as 
 the tariff bill, which the committee reported December 
 19, 1893, did not contain any reference to income taxes, 
 and Senator Hill afterwards asserted that no agreement 
 had been reached at that time by the committee in refer- 
 ence to income tax. It would also seem that the Presi- 
 dent had in mind a special tax upon corporations. 
 
 On the 24th of January, 1894, Mr. McMillin of 
 Tennessee introduced a bill (H. R. 5442), "to impose a 
 tax on corporate and individual incomes, to increase the 
 tax on distilled spirits and for other purposes." The bill 
 followed very closely the provisions of the Civil War in- 
 come tax laws and Mr. McMillin stated in reference to 
 the exemption of interest paid to depositors in savings 
 banks, "We have followed, so far as we consistently 
 could, that line of policy which received judicial con- 
 struction under the old law." While the exemption was 
 
 2 . Committee of Ways and Means of the House of Representa- 
 tives.
 
 258 INCOME TAXATION 
 
 statutory and the Civil War income tax received scarcely 
 any judicial construction, he no doubt had in mind the 
 case of Gary vs. St. Francisco Savings Union, 22 Wallace 
 38 (1874) in which the Supreme Court held that under 
 the act of 1864, as amended in 1866, earnings of savings 
 banks paid out as dividends were taxable. 
 
 The bill was incorporated in the general Internal 
 Revenue Amendment and when it came before the House 
 for action (February 1, 1894) an effort was made by 
 Mr. Cochran of New York to obtain unanimous consent 
 that the vote be confined to the income tax proposition. 
 Objection was made and the Speaker ruled that the ques- 
 tion was not divisible. The vote on the amendment was 
 the real test vote as to income tax and it showed, ayes 
 182, nays 48, not voting 122. It is interesting to note 
 that if those who voted in favor of the law were classified 
 according to geographical divisions there were : 
 
 From southern states 108 
 
 western " 69 
 
 " middle 3 
 
 " New England " 2 
 
 It thus appeared that all but five of the members w r ho 
 voted in favor of the tax came from southern or western 
 states. The final vote upon the whole bill stood 204 yeas, 
 140 nays, 8 not voting. 
 
 On the second of February, 1894, the bill was trans- 
 mitted to the Senate and referred to the Committee on 
 Finance. It was reported back March 20, but the pro- 
 visions relating to income tax were not reached until the 
 21st of June. A great number of amendments were 
 offered and from June 21 to June 28 a large portion of 
 the time of the Senate was occupied with arguments for 
 and against the measure and in discussing a great num-
 
 INCOME TAX LAW OF 1894 259 
 
 her of proposed amendments. The bill was passed in the 
 Senate July 3, 1894, by a vote of 39 to 34 and, as the 
 Senate was disposed to insist on its amendments, it went 
 to a Committee of Conference. At first there was much 
 opposition to the Senate amendments, but the House 
 finally accepted them and, August 28, 1894, the bill was 
 reported to the House as having become a law without 
 the President's approval. The most important amend- 
 ment which the Senate had made was one which limited 
 the operation of the law to the first day of January, 1900. 
 In its main features the bill followed the law of 1867, 
 and such changes as were made were not of such a 
 character as to indicate that the subject had received very 
 careful consideration. The new law provided for a tax 
 of 2 per cent upon all incomes exceeding $4,000. It is 
 difficult to understand the theory upon which the exemp- 
 tion was placed so high and even the Populists, through 
 Senator Peffer, endeavored to have the exemption 
 lowered to $1,000, which was the amount of the exemp- 
 tion in the law of 1867. In all other countries the aim 
 has been to make the exemption equivalent to a reason- 
 able "minimum of existence," and $1,000, while much 
 higher than the sums usually fixed in other countries, 
 might possibly be considered a reasonable exemption in 
 the United States; but, to fix the exemption at $4,000, 
 was to relieve the great mass of moderate incomes from 
 taxation and concentrate the tax upon a very small num- 
 ber of comparatively wealthy people. The feeling of op- 
 position which this provision of the law engendered was 
 reflected by an article signed "Plain Speaker," published 
 in the North American Review, in which the following 
 language was used :
 
 26O INCOME TAXATION 
 
 The well-to-do will no more be able to stay the increase 
 than they have been to stay the imposition of the tax itself. 
 They have all been separated from the rest of the com- 
 munity, the dividing line being at $4,000. They have been 
 constituted a class apart, especially chosen to bear the burden 
 of taxation. 
 
 It is not in human nature for those who have nothing, 
 to resist the temptation of increasing the tax of the well-to- 
 do. This increase would probably be arrived at by the in- 
 sertion of progressive features in the tax. You can resist 
 Socialism and Anarchism, because these would affect the 
 people at large, but a progressive tax on income and in- 
 heritances would fall immediately but on the few. 
 
 You can declare that it is visionary it is very actual 
 and real. Yet it may be made to go as far as the wildest 
 Socialist dream. Once admitting the principle, that a small 
 portion of the community can be penned off for taxation 
 without the rest a portion that must necessarily be, if not 
 unpopular, at least the subjects of envy on the part of the 
 many, and their sacrifice must follow. 21 
 
 Among the many defects and incongruities in this act, 
 the following may be mentioned : 
 
 1. The $4,000 exemption did not apply to corpora- 
 tions and, therefore, the man who had $3,000 income 
 from corporate dividends would be taxed, while one who 
 received the same sum from other sources would not. 
 
 2. The act applied to all personal property acquired 
 by gift or inheritance. This was objectionable, because 
 
 a). Successions are irregular and not periodic and 
 are therefore not properly income. 
 
 b). Because inheritances are otherwise taxed in 
 many states. 
 
 c). Because a discrimination was made against all per- 
 sons receiving personal property by inheritance. The re- 
 sult was that a man who inherited real estate of the value 
 of $100,000 would be free from the income tax, while 
 
 21 . North American Review. Vol. 160, p. 605.
 
 INCOME TAX LAW OF 1894 26 1 
 
 the man who inherited $100,000 of personal property 
 would have to pay $2,000 taxes. 
 
 3. While the act provided that "nothing herein con- 
 tained shall apply to states, counties or municipalities," 
 there was no express exemption of corporations the stock 
 of which might be owned by a state or municipality and 
 be used for the discharge of slate or municipal func- 
 tions. 22 
 
 4. The act did not exempt the salaries of the Presi- 
 dent and Federal Judges. The constitution provides that 
 the compensation of such officers shall not be diminished 
 during their continuance in office. There is good au- 
 thority for believing that such salaries cannot be taxed 
 without an amendment to the constitution. 23 
 
 5. Under the wording of the law farmers were not 
 taxed upon the amount of produce retained and con- 
 sumed by their families and were thus given a deduction 
 not accorded to others. 
 
 6. Section 28 of the act refers to income or salary 
 upon which a tax has not been paid by the employer, 
 "where the employer is required by law to pay on the ex- 
 cess of over $4,000 ;" but the act failed to make any pro- 
 vision for the payment by employers on the excess 
 specified. 
 
 7. No provision was made for collection at the 
 source, except in the case of salaries of Government 
 
 22. The Collector v. Day, 11 Wall. 113. U. S. v. Bait. & O. R. R. 
 Co. 17 Wall. 322. 
 
 23 . See letter of Chief Justice Taney to Secretary of the Treas- 
 ury, February 16, 1863, in Tyler's Life of Taney, pp. 432-435. Opin- 
 ion of E. R. Hoar, Attorney-General, Oct. 23, 1869, Opinions of At- 
 torneys-General, Vol. 13, p. 367.
 
 262 INCOME TAXATION 
 
 officials and in such case, the collections would of course 
 he for the current year, while all other persons were pay- 
 ing upon the income of the preceding year. 
 
 8. No distinction was made between earned and un- 
 earned incomes nor was any variation made in the ex- 
 emption according to the size of families and the number 
 of persons whom the taxpayer had to support. 
 
 In order to understand the force and effect of the 
 decisions of the Supreme Court declaring the Income 
 Tax Law of 1894 unconstitutional, it is necessary to re- 
 view certain decisions which had been previously 
 rendered. These decisions are : 
 
 1. Hylton vs. United States, 3 Dallas, 171 (1796). 
 
 2. Pacific Insurance Co. vs. Soule, 7 Wallace, 433 
 
 (1868). 
 
 3. Veazie Bank vs. Fenno, 8 Wallace, 533 (1889). 
 
 4. Scholey vs. Rew, 23 Wallace, 331 (1874). 
 
 5. Springer vs. United States, 102 U. S., 586 
 
 (1880). 
 
 The clauses of the constitution involved in each of 
 these cases w r ere the following : 
 
 "Representatives and direct taxes shall be apportioned 
 among the several states which may be included within 
 this Union according to their respective numbers, which 
 shall be determined by adding to the whole number those 
 bound to service for a term of years, and excluding 
 Indians not taxed, three-fifths of all other persons" * * * 
 
 "No capitation or other direct tax shall be laid unless 
 in proportion to the census hereinbefore directed to be 
 taken." 
 
 In the first of the above decisions it was held that a 
 tax on carriages could not be laid by the rule of appor-
 
 INCOME TAX LAW OF 1894 263 
 
 tionment without very great inequality and injustice and 
 that therefore the constitution could not have intended 
 that an apportionment should be made. The court held 
 that the tax on carriages was an excise and therefore an 
 indirect tax. Chancellor Kent, in speaking of this case 
 said : "The better opinion seems to be that the direct 
 taxes contemplated by the Constitution were only two, 
 viz. : a capitation or poll tax and a tax on land." 
 
 The second case was one involving the validity of 
 taxes on receipts of insurance companies from premiums. 
 The court held unanimously that the taxes were not direct 
 taxes and were therefore valid. 
 
 In the third decision the opinion of the Supreme 
 Court, delivered by Chief Justice Chase, was to the effect 
 that a tax of ten per cent upon the notes or circulation 
 of State banks was not a direct tax which required ap- 
 portionment. The Chief Justice used the following 
 language : "It may be rightly affirmed that, in the prac- 
 tical construction of the Constitution by Congress, direct 
 taxes have been limited to taxes on land and appurte- 
 nances and taxes on polls or capitation taxes." 
 
 In the fourth case it was held that the succession or 
 inheritance taxes imposed by the Acts of June 30, 1864, 
 and July 13, 1866, were not direct taxes and were there- 
 fore valid. 
 
 In the case of Springer vs. United States the question 
 of the validity of the income tax was more directly in- 
 volved and the decision was considered by many good 
 lawyers to sustain fully the right of Congress to levy in- 
 come taxes without apportionment. 
 
 Mr. Justice Swayne in delivering the opinion of the 
 Court said :
 
 264 INCOME TAXATION 
 
 "The central and controlling question in this case is 
 whether the tax which was levied on the income, gains 
 and profit of the plaintiff in error, as set forth in the 
 record * * * is a direct tax." 
 
 In speaking of the Hylton case he said : 
 "It was well held that where such evils would attend 
 the apportionment of a tax the Constitution could not 
 have intended that an apportionment should be made. 
 This view applies with even greater force to the tax in 
 question in this case. Where the population is large and 
 the incomes are few and small it would be intolerably op- 
 pressive." 
 
 The decision closed with the following words : 
 "Our conclusions are that direct taxes within the 
 meaning of the Constitution are only capitation taxes as 
 expressed in that instrument and taxes on real estate, and 
 that the tax of which the plaintiff in error complains is 
 within the category of an excise or duty." 
 
 It will be observed however that there was a latent 
 inconsistency in this decision in so far as it asserted that 
 a tax on land was a direct tax and an income tax was not 
 direct. This left room for doubt as to whether a tax on 
 income which was composed of the rents of land, would 
 be held to be direct or indirect. This inconsistency had 
 evidently not been overlooked, and soon after the passage 
 of the Income Act of 1894, one Charles Pollock, a citizen 
 of Massachusetts, brought an action against the Farmers 
 Loan and Trust Company of New York City, averring 
 that he was the owner and holder of ten shares of the 
 capital stock of said company of a value exceeding 
 $5,000, and that he brought suit not only in his own be- 
 half, but also as a representative of the other stock- 
 holders. He complained that the company was about to
 
 INCOME TAX LAW OF 1894 265 
 
 pay a tax of 2 per centum of its net profits in excess of 
 $4,000, which payment would diminish the assets of the 
 company and lessen the dividends on the shares. It was 
 alleged that the law was unconstitutional, null and void 
 for a variety of reasons, and among others, because the 
 income of the Trust Company was in part from real 
 estate and from stocks and bonds of states of the United 
 States and counties and municipalities. 24 
 
 Certain other cases which involved the same ques- 
 tions, were argued at the same time and the briefs filed 
 for and against the validity of the income tax were pre- 
 pared by men of distinguished ability. The formidable 
 array of counsel who opposed the tax comprised such 
 men as William D. Guthrie, Benjamin H. Bristow, 
 Clarence A. Seward, Joseph H. Choate and Senator 
 Edmunds. In defense of the tax, arguments were made 
 by the Attorney General, Richard Olney, Assistant At- 
 torney General Whitney and James C. Carter. 
 
 Mr. Guthrie attacked the law chiefly on the ground 
 of its discrimination and lack of uniformity. Mr. Seward 
 argued that the income tax was a direct tax within the 
 meaning of the constitution; while Mr. Choate attacked 
 the law as communistic in its purposes and tendencies and 
 insisted strenuously that the tax was a direct tax because 
 it included income from the rental value of land. To use 
 his own language 
 
 24 . Pollock vs. Farmers' Loan and Trust Company, 157 U. S. 
 429. Rehearing 158 U. S. 601. Owing to the importance of this 
 case the arguments were published in connection with the opinions. 
 The report of the original trial fills 125 pages of volume 157, and 
 that of the^ rehearing 115 pages of volume 158 of the Supreme Court 
 reports. The impossibility of giying any adequate synopsis of the 
 arguments and opinions in a brief space will be evident, and we 
 commend the reading of this case (which can be found in almost 
 every law library) to every person who desires to understand its 
 full import.
 
 266 INCOME TAXATION 
 
 I say that a tax on land yielding income by whatever 
 name is in reality, in effect and substance, a tax upon the 
 rental. * * * Was it intended that, although Congress 
 could not put an unapportioned tax upon real estate, it could 
 put an unapportioned tax upon rent of real estate and so 
 eat all the real estate up? How can a man pay this five 
 years' annual tax on the rent of real estate? Absolutely 
 only out of the rental. Would any free people, if they had 
 prohibited a land tax, submit to a tax on rentals ? 
 
 He pointed out some of the incongruities in the law 
 which have already been mentioned, complained of the 
 lack of uniformity in its application, and called attention 
 to the fact that the tax in so far as it applied to municipal 
 bonds was an interference with state sovereignty. 
 
 In support of the tax it was claimed that the tax was 
 not a direct tax; that the uniformity required by the con- 
 stitution was simply geographical uniformity; that a tax 
 on income was not a tax on land especially as much land 
 did not produce income; that there was no impropriety 
 in taxing state securities, but, if there were, the law 
 would be invalid only as to them; and that the inequalities 
 in the law were inseparable from all tax legislation. Mr. 
 Carter, in answering the argument that the law was class 
 legislation, met the issue squarely and used the following 
 vigorous language: 
 
 It is said to be class legislation, and to make a distinc- 
 tion between the rich and the poor. It certainly does. It 
 certainly is class legislation in that sense. That was its very 
 object and purpose. This is a distinction which should al- 
 ways be looked to in the business of taxation. Unfortunate- 
 ly heretofore it has been observed in the wrong direction, 
 as I have already pointed out, and the poorer class pro- 
 digiously over-burdened. 
 
 It is said also to be sectional legislation, and that too is 
 true. It is so, not in terms, but in operation and effect ; but 
 it is so only because wealth has become sectional. If either 
 of the two objections alluded to could be allowed to prevail,
 
 INCOME TAX LAW OF 1894 267 
 
 it would be forever impossible for this country to lay any 
 income tax whatever. Such features belong to the very 
 nature of an income tax. 
 
 He also claimed that the constitutionality of the law 
 had been settled by the decisions in the five cases which 
 have been referred to above. As to the question of tax- 
 ing incomes from State and municipal bonds he said : 
 
 I think the objection is untenable, first, because if the 
 tax is a tax upon any state agency, it is a tax upon the bor- 
 rowing power, and this is not necessary to municipalities, 
 or even to States, in any such sense or degree, as it is neces- 
 sary to the United States. The great exigency of war, 
 which is the principal case calling for an exercise of the 
 borrowing power, if not the only one in which loans are 
 absolutely necessary, does not rest upon the States. Their 
 existence, with all their functions can be maintained by 
 means of revenue derived from taxation, and perhaps it 
 would be better if no other means had ever been resorted 
 to by them. In the next place this court has held what must 
 undoubtedly be true, that each State has the right to tax 
 the municipal and state bonds of every other State, and 
 shall it be said that the United States do not have the power 
 to tax a species of property which every other State in the 
 Union has the power of taxing ? 
 
 The decision of the majority of the Court was de- 
 livered by Chief Justice Fuller and it held among other 
 things : 
 
 A tax on the rents or income of real estate is a direct 
 tax within the meaning of that term as used in the con- 
 stitution of the United States. A tax upon income de- 
 rived from the interest on bonds issued by municipal cor- 
 porations is a tax upon the power of the state and its in- 
 strumentalities to borrow money and is consequently re- 
 pugnant to the constitution of the United States. 
 
 The court also held that so much of the act as pro- 
 vided for levying taxes on income derived from real 
 estate or from the interest on municipal bonds was in- 
 valid.
 
 268 INCOME TAXATION 
 
 There were three questions upon which the court was 
 equally divided, to-wit: 
 
 1. Whether the void provision as to rents and in- 
 come from real estate invalidated the whole act. 
 
 2. Whether as to the income from personal property 
 as such, the act was unconstitutional as laying direct 
 taxes. 
 
 3. Whether any part of the tax, if not considered as 
 a direct tax, was invalid for want of uniformity. 
 
 An able and exhaustive dissenting opinion was filed 
 by Justice White, which was concurred in by Justice 
 Harlan. 
 
 The decision in the Pollock case was rendered April 
 8, 1895, and ten days later a petition for a rehearing was 
 filed. The petition was granted and the questions remain- 
 ing undecided were again argued with great force and 
 ability. On May 20, the court, by a bare majority of one, 
 held the whole income tax law unconstitutional, summing 
 up its conclusions in the following words : 
 
 First. We adhere to the opinion already announced, that 
 taxes on real estate being undisputably direct taxes, taxes 
 on the rents or income of real estate are equally direct taxes. 
 
 Second. We are of opinion that taxes on personal prop- 
 erty, or on the income of personal property, are likewise 
 direct taxes. 
 
 Third. The tax imposed by sections twenty-seven to 
 thirty-seven, inclusive, of the act of 1894, so far as it falls 
 on the income of real estate and of personal property, being 
 a direct tax within the meaning of the Constitution, and, 
 therefore, unconstitutional and void because not apportioned 
 according to representation, all those sections, constituting 
 one entire scheme of taxation, are necessarily invalid. 
 
 Able and exhaustive dissenting opinions were filed by 
 Justices Harlan, Brown, Jackson and White, and their 
 defence of the tax was so vigorous and eloquent, that the
 
 SOUTHERN CONFEDERACY 269 
 
 effect of the decision, on the whole, would seem to have 
 been to strengthen the public sentiment in favor of an 
 income tax. 
 
 C. INCOME TAXES IN THE SOUTHERN CONFEDERACY. 
 
 It is a fact not generally known in the North, that the 
 Southern Confederacy levied an income tax designed to 
 produce a large revenue; but the disordered state of the 
 finances, unforseen difficulties in administration and the 
 fact that so large a proportion of business men were in 
 military service, combined to make the tax much less 
 productive than it would have been under normal con- 
 ditions. 
 
 In August, 1861, a direct war tax of one-half of one 
 per cent was levied upon all property, and apportioned 
 among the states; but the serious mistake was made of 
 leaving to the states the collection of the needed sums. 
 Instead of levying a tax, all the states, except Texas and 
 South Carolina, borrowed the money, issuing bonds and 
 state treasury notes, thus following the example of the 
 central government which practically exhausted its credit 
 before resorting to taxation. The Confederate con- 
 gress, in April, 1863, passed a general taxing act which 
 consisted of an eight per cent tax on property; license 
 taxes ; an income tax payable in cash ; and an income tax 
 payable in kind. These taxes were to be collected for 
 two years from 1864. 
 
 The differentiation between salaries and other in- 
 come was quite extreme, as will be seen by comparing 
 the following rates. The law provided, 
 
 That upon salaries of all salaried persons, serving in any 
 capacity whatever, except upon the salaries of persons serv- 
 ing in the military or naval service, there shall be levied and 
 collected a tax of one per centum on the gross amount of
 
 INCOME TAXATION 
 
 such salary when not exceeding $1,500 and two per centum 
 upon any excess over that amount to be levied and collected 
 at the end of each year * * * Provided that no tax 
 shall be imposed by virtue of this act on the salary of any 
 person receiving a salary not exceeding $1,000 per annum. 25 
 
 The rates on net income from other sources than sal- 
 aries were: 
 
 Under $ 500 exempt 
 
 Over 500 and not exceeding $1,500 5% 
 
 Over 1,500 and not exceeding 3,000 5% on first $1,500 
 
 and 10 per cent on all excess. 
 Over $ 3,000 and not exceeding $ 5,000 10 % 
 Over 5,000 and not exceeding 10.000 12 l / 2 % 
 Over 10,000 15 % 
 
 It would seem from the wording of the law that the 
 exemption of $500 did not apply to incomes above that 
 sum. 
 
 Stock companies and certain corporations were taxed 
 ten per cent on their profits, and, if such profits were be- 
 tween ten and twenty per cent of their capital stock paid 
 in, the rate was 12*/2 per cent, or, in case the profits ex- 
 ceeded 20 per cent the rate was as high as 16 2/3 per cent. 
 
 Farmers were required to pay one-tenth of their pro- 
 duce in kind. The law provided further that they 
 should furnish the assessors a statement of the number 
 of hogs slaughtered and "deliver an equivalent for one- 
 tenth of the same in cured bacon at the rate of 60 pounds 
 of bacon to the one hundred weight of pork." 26 This 
 provision was subsequently modified so as to give an ex- 
 emption of 250 pounds of pork. These taxes in kind, 
 which were expected to procure large quantities of corn, 
 hay, fodder and other supplies needed by the army, were 
 
 25 . Statutes at Large of the Confederate States of America, 
 First Congress, 3rd Session, Ch. 38, p. 120, Section 7. 
 
 26 . Statutes at Large of the Confederate States of America, 4th 
 Session, Ch. 66.
 
 SOUTHERN CONFEDERACY 2"Jl 
 
 very unpopular, especially in North Carolina, where 
 numerous public meetings were held to protest against 
 the discrimination which took from the farmer so large 
 a portion of his substance, while permitting others to 
 pay their taxes in depreciated currency. 
 
 The report of the Commissioner of Taxes made in 
 November, 1863, advocated a tax of 25 per cent on per- 
 sons having large incomes so as to "make it more profit- 
 able to invest their money in Confederate securities than 
 to employ it in speculation or business." 27 
 
 Another objection to the income tax in general arose 
 from the fact that the permanent Constitution of the 
 Confederate States contained a clause similar to that in 
 the United States Constitution, providing that direct 
 taxes should be apportioned among the states according 
 to population, and it \vas claimed that the income tax 
 was unconstitutional, because not thus apportioned. 
 President Davis recognized this difficulty in his message, 
 in December, 1863; but argued that the law could have 
 no application until a census had been taken, and he did 
 not recommend the taking of such a census until the war 
 should be ended. 28 
 
 27 . "If necessary, a tax of twenty-five per cent should be laid 
 on incomes over $5,000, and fifty per. cent on all over $10,000, and 
 fifty per cent on the profits of all joint stock companies and corpora- 
 tions, over and above a dividend of twenty-five per cent paid to their 
 stockholders. This may be considered extravagant, and capitalists 
 may think it oppressive, but it is neither. Every man should be 
 satisfied with a support for himself and family, and all he makes 
 above that should be divided with his country. No man should de- 
 sire to amass a fortune, or to increase his fortune, if he already has 
 one, from the hard necessities of a bleeding country. While three- 
 fourths, perhaps, of the men of the Confederacy, have dedicated 
 their lives or fortunes, and in many instances, both, to their coun- 
 try's cause, the remaining fraction have no moral right to amass 
 fortunes at their expense." Confederate Archives. Documents ac- 
 companying Report of Secretary of the Treasury. Report of 
 Thompson Allan, Com'r of Taxes, p. 2. 
 
 28 . J. C. Schwab. The Confederate States of America, 1861- 
 1865, p. 294.
 
 272 INCOME TAXATION 
 
 As to the amount produced by the Confederate in- 
 come tax, little is known for the reason that it was 
 blended with other taxes. The amount received from 
 the "produce tax" up to the end of 1863, was officially 
 valued at five million dollars (Confederate currency, 
 equal to about $350,000 in specie). The conditions under 
 which the tax was levied were so abnormal and the sta- 
 tistics which have been preserved so incomplete, that it 
 would be unsafe to draw any conclusions from it favor- 
 able or otherwise to an income tax.
 
 CHAPTER XIII. 
 
 THE CORPORATION TAX LAW. 
 
 Section 38 of the Act of Congress of August 5, 1909, 
 entitled "An Act to provide revenue, equalize duties and 
 encourage the industries of the United States, and for 
 other purposes," provided that certain corporations, joint 
 stock companies and insurance companies should be 
 "subject to pay annually a special excise tax with re- 
 spect to the carrying on or doing business by such cor- 
 poration, joint stock company or association, or insur- 
 ance company, equivalent to one per centum upon the en- 
 tire net income over and above five thousand dollars re- 
 ceived by it from all sources during such year." 
 
 This law is unique in the annals of fiscal experiments. 
 Other countries have taxed corporations, but no nation, 
 so far as I can learn, has ever attempted to levy a similar 
 tax wholly and exclusively on incorporated bodies. 
 
 The history of the law presents many peculiar feat- 
 ures 1 and the act itself exhibits some curious anomalies. 
 
 1 . "Its coming into being is one of the most remarkable of re- 
 cent legislative events. It was not discussed during the campaign ; 
 it was not mentioned in President Taft's inaugural ; it was not pro- 
 posed in the compact and deliberate program laid down by the 
 President in his message at the opening of the special session, nor 
 was it brought forward as any part of the pending revenue measure 
 by any member of Congress." Review of Reviews, Vol. 40, p. 136. 
 (Aug. 1, 1910.)
 
 274 INCOME TAXATION 
 
 For example, it might be supposed that a fiscal meas- 
 ure of such importance would not be adopted without a 
 great amount of preliminary study and discussion; but, 
 as a matter of fact, the law was passed hastily and with 
 but little debate in the closing hours of a long and weari- 
 some session. 
 
 It was not an independent measure, but was one of 
 the last of the numerous amendments tacked on to the 
 very voluminous tariff Act. It is true that Attorney 
 General Wickersham, who is credited with having drawn 
 the bill, is noted for his great ability and legal attain- 
 ments; but it can hardly be claimed that he was an ex- 
 pert in matters of fiscal legislation. 
 
 Again, it might be supposed that being a revenue 
 measure it would necessarily originate in the House of 
 Representatives; 2 but, so far from that being the case, it 
 not only did not originate in the House, but never was 
 before the House for consideration, discussion or vote. 3 
 
 It might be thought that an Act which by its title pro- 
 poses to "encourage the industries of the United States" 
 would not single out industrial corporations for special 
 taxation. Such a method of encouragement, as Mr. 
 Machen grimly suggested, "would be that of the French 
 captain who hanged a number of his men from the yard- 
 arms 'pour encourager les autres!' "* 
 
 2 . "All bills for raising revenue shall originate in the House 
 of Representatives ; but the Senate may propose or concur with 
 amendments as on other bills." Constitution of the United States, 
 Section 7, Article I. 
 
 3. It should be stated, however, that a draft of the bill was 
 handed to Representative Longworth by the President, some months 
 previous to its passage, for submission to the Ways and Means 
 Committee of the House, but no action was taken upon it by the 
 Committee. See speech of Hon. Nicholas Longworth at Chicago. 
 
 4 . Machen. A Treatise on the Federal Corporation Tax Law 
 of 1909, p. 5.
 
 THE CORPORATION TAX LAW 275 
 
 It might be supposed that a tax, the amount of which 
 is determinable wholly by reference to net income would 
 be recognized as at least a partial income tax. But it is 
 precisely the friends of the law who are most strenuous 
 in claiming that it is not an income tax, and we are met 
 by a bewildering diversity of opinion as to whether it is 
 a tax, or an excise, or an "excise tax" and as to whether 
 it is levied on property, franchises, privileges, business 
 or income. 
 
 In order to understand the genesis of the corporation 
 tax law it is necessary to go back to the proposed "war 
 tax" of 1898. This was a bill to tax the franchises of 
 corporations on the basis of their gross earnings, or re- 
 ceipts and, like other Federal income tax laws, it eman- 
 ated from the Senate Finance Committee as an amend- 
 ment to the revenue act. It met with much opposition 
 and finally, in lieu of it. a law was passed which was evi- 
 dently aimed at the so-called "Sugar Trust" and Stand- 
 ard Oil Trust." 
 
 Section 27 of this law reads as follows : 
 
 That every person, firm, corporation or company, carry- 
 ing on or doing the business of refining petroleum, or re- 
 fining sugar or owning or controlling any pipe line for trans- 
 porting oil or other products, whose gross annual receipts 
 exceed two hundred and fifty thousand dollars, shall be 
 subject to pay annually, a special excise tax equivalent to 
 one-quarter of one per centum on the gross amount of all 
 receipts of such persons, firms, corporations, and companies 
 in their respective business in excess of said sum of two 
 hundred and fifty thousand dollars. 
 
 The law was assailed as unconstitutional and as in 
 conflict with the principles enunciated in the Pollock case. 
 The question was submitted to the Supreme Court of the 
 United States in the case of Spreckels Sugar Refining
 
 276 INCOME TAXATION 
 
 Company vs. McClain, 192 U. S. 397, and the tax was 
 sustained. In its decision the Court used the following 
 language : 
 
 The tax is defined in the Act as "a special excise tax," 5 
 and, therefore, it must be assumed, for what it is worth, 
 that Congress had no purpose to exceed its powers under 
 the Constitution, 6 but only to exercise the authority granted 
 to it of laying and collecting excises. [The Court then cited 
 and commented upon Pacific Insurance Company vs. Soule, 
 7 Wallace, 433, and other cases.] In view of these and 
 other decided cases, we cannot hold that the tax imposed on 
 the plaintiff expressly with reference to "its carrying on or 
 doing the business of * * * refining sugar," and which 
 was to be measured by its gross annual receipts in excess of 
 a named sum, is other than is described in the Act of Con- 
 gress, a special excise tax, and not a direct one to be ap- 
 portioned among the States according to their respective 
 numbers. This conclusion is inevitable from the judgments 
 in prior cases, in which the court has dealt with the dis- 
 tinction, often very difficult to be expressed in words, be- 
 tween taxes that are direct and those which are to be re- 
 garded simply as excises. 
 
 The decision was very important, not only in that it 
 was construed by many as indicating a retreat from the 
 ground taken by the Court in the Pollock case, but also 
 as seeming to point out a method by which the alleged 
 constitutional restrictions on direct taxes could be 
 evaded. It will be noticed that the corporation tax law 
 of 1909, is drawn with special reference to bringing it 
 within the protecting aegis of that decision. 
 
 6 . As the whole question hinges upon whether the law author- 
 izes a tax or excise the term "excise tax" seems incongruous. 
 
 6 . Compare the opinion in the Pollock case, where it is said that 
 "the name of the tax is unimportant ;" that "it is the substance and 
 not the form which controls ;" and that the limitations of he Con- 
 stitution cannot be "frittered away" by calling a tax indirect when 
 it is, in fact, direct. Pollock v. Farmers' Loan and Trust Com- 
 pany, 157 U. S. pp. 580, 581 and 583.
 
 THE CORPORATION TAX LAW 277 
 
 The Republican National Convention, held in Chi- 
 cago, June 18, 1908, made no mention of the income tax 
 in its platform; but the Democratic Convention at Den- 
 ver in July, 1908, adopted the following "plank:" 
 
 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 proportionate share of the burdens of the 
 Federal Government. 
 
 The Socialist convention in May had also declared in 
 favor of a graduated income tax. President Roosevelt 
 had said in his message of December 4, 1906 : 
 
 The 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 de- 
 clare constitutional. 
 
 In his speech of acceptance at Cincinnati, July 28, 
 1908, President Taft expressed the same idea as follows : 
 
 The Democratic platform demands two constitutional 
 amendments, one providing for an income tax and the other 
 for an election of Senators by the people. 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 
 governmental needs, can and should be devised which, un- 
 der the decisions of the Supreme Court will conform to the 
 Constitution. 
 
 In his inaugural address however President Taft 
 made the following recommendation: 
 
 Should it be impossible to do so [secure sufficient reve- 
 nue] from import duties, new kinds of taxation must be 
 adopted and, among these, I recommend a graduated in- 
 heritance tax as correct in principle and as certain and easy 
 of collection. 
 
 It was in accordance with this recommendation that 
 the Ways and Means Committee reported an inheritance
 
 278 INCOME TAXATION 
 
 tax law as part of the Payne Tariff Bill, and this was 
 subsequently passed by the House and sent to the Senate 
 for concurrence. 
 
 On June 16, 1909, President Taft transmitted a 
 special message to Congress, from which the following is 
 an extract : 7 
 
 I recommended a graduated inheritance tax as correct 
 in principle and as certain and easy of collection. The House 
 of Representatives has adopted the suggestion and has pro- 
 vided in the bill it passed for the collection of such a tax. 
 In the Senate the action of its finance committee and the 
 course of the debate indicate that it may not agree to this 
 provision and it is now proposed to make up the deficit by 
 the imposition of a general income tax in form and sub- 
 stance of almost exactly the same character as that which, 
 in the case of Pollock vs. the Farmers Loan and Trust Com- 
 pany (157 U. S. 429), was held by the Supreme Court to 
 be a direct tax and therefore not within the power of the 
 general Government to impose unless apportioned among 
 the States according to their population. 
 
 The decision in the Pollock case left power in the Na- 
 tional Government to levy an excise tax which accomplishes 
 the same purpose, as a corporation income tax, but is free 
 from certain objections urged to the proposed income tax 
 measure. I, therefore, recommend an amendment to the 
 tariff bill imposing upon all corporations and joint stock 
 companies for profit, except National banks (otherwise 
 taxed) savings banks and building and loan associations, an 
 excise tax measured by two per cent, on the net income of 
 such corporations. This is an excise tax upon the privilege 
 of doing business as an artificial entity and of freedom from 
 a general partnership liability enjoyed by those who own 
 the stock. 
 
 The message also cites the Spreckles case as justify- 
 ing the imposition of such an "excise tax." 
 
 At the request of the President, Attorney General 
 Wickersham prepared a bill and, in accordance with the 
 
 7 . Congressional Record, Vol. 44, Pt. Ill, p. 3344.
 
 THE CORPORATION TAX LAW 279 
 
 suggestion contained in the message, the Senate sub- 
 stituted the law thus prepared, for the inheritance tax. 
 The bill was sent into conference, and was eventually 
 passed by the Senate August 5, 1909, as a part of the 
 general tariff act. There were no important amendments 
 except that the rate was reduced to one per cent. 
 
 Early in the history of the Payne Tariff Bill, 8 Senator 
 Bailey of Texas, introduced an amendment which pro- 
 vided for a general income tax. This amendment fol- 
 lowed very closely the Income Tax Law of 1894, except 
 that it provided for a fixed rate of 3 per cent on all in- 
 comes in excess of $5,000, and contained special pro- 
 visions for a corporation tax, an inheritance tax and a tax 
 on gifts, devises, and bequests. 
 
 At the same time Senator Cummins of Iowa, pre- 
 sented an amendment proposing a graduated tax upon all 
 incomes over $5,000 a year. The scale of rates proposed 
 by him was as follows : 
 
 On incomes not exceeding $ 10,000 2 % 
 
 20,000 2 l /2% 
 
 40,000 3 % 
 
 60,000 y/2% 
 
 80,000 4 % 
 
 100,000 5 % 
 
 of more than 100,000 6 % 
 
 These two amendments were eventually consolidated, 9 
 mainly in the form of the Bailey bill, and strenuous 
 efforts were made to secure the adoption of the "Bailey- 
 Cummins amendment," before proceeding to revise the 
 tariff. It was argued that, if there was a prospect of 
 raising $150,000,000 or $200,000,000 by a tax on in- 
 
 8 . April 21, 1909. 
 
 9 . See Amendment to H. R. 1438 proposed by Senator Bailey 
 June 11, 1909.
 
 28O INCOME TAXATION 
 
 come, much larger reductions could be made in the tariff 
 schedules. The Republican leaders however took alarm 
 at this plan as involving a menace to the whole protective 
 system, and succeeded in postponing action on the income 
 tax amendments until the revision of the tariff should be 
 completed and the amount of the resulting deficit definite- 
 ly known. 
 
 The position taken by the administration forces 
 of the Senate is shown by the following colloquy, which 
 occurred June 29, 1909, between Senator Clay of Georgia 
 and Senator Aldrich of Rhode Island. 
 
 Mr. Clay: I want to ask the Senator a question. If 
 we are to raise $50,000,000 per year by a tax on corporation 
 dividends does the Senator think that such a tax is a vicious 
 assault upon the protective system; and, second, if this bill 
 as it stands will produce enough revenue to support the 
 government and we adopt the corporation tax raising 
 $50,000,000, does not the Senator think we ought to take up 
 some of the other schedules and reduce the duty in propor- 
 tion to the amount that we raise by the corporation tax ? 
 
 Mr. Aldrich : Does the Senator from Georgia want an 
 answer? 
 
 Air. Clay : I would not have asked the question if I did 
 not. 
 
 Mr. Aldrich : I shall vote for the corporation tax as a 
 means to defeat the income tax. 
 
 Mr. Clay : I think that is an honest statement. 
 
 Mr. Aldrich : I will be perfectly frank with the Senate 
 in that respect. I shall vote for it for another reason. The 
 statement which I made shows a deficit for this year and 
 for next year. This year I estimated $69,000,000. It will 
 be $60,000,000. And next year I estimate a deficit of 
 $45,000,000. I am willing that that deficit shall be taken 
 care of by a corporation tax. That corporation tax, how- 
 ever, at the end of two years, if my estimate should be cor- 
 rect, should be reduced to a nominal amount or repealed. 
 It can be reduced to a nominal amount and the feature of 
 the corporation tax that commends it to many Senators and
 
 THE CORPORATION TAX LAW 28 1 
 
 a great many other people is that the corporation tax, if it 
 is adopted, will certainly be very largely reduced, if not re- 
 pealed at the end of two years. 
 
 So I am willing to accept a proposition of this kind for 
 the purpose of avoiding what to my mind is a great evil and 
 the imposition of a tax in time of peace when there is no 
 emergency a tax which is sure in the end to destroy the pro- 
 tective system. 10 
 
 A different view as to the probable permanency of 
 the law was entertained by Senator Flint of California, 
 who said : 
 
 If the amendment is adopted by Congress it will remain 
 permanently on the statute books until such time as the peo- 
 ple of this country, through their legislatures, shall ratify 
 the constitutional amendment and then there will be added 
 to it an income tax. 
 
 Senator Root of New York, in his speech advocating 
 the passage of the corporation tax amendment, expressed 
 himself as follows : 
 
 Gentlemen may say I am for the corporation tax to beat 
 the income tax. I care not. I am for the corporation tax 
 because I think it is better policy, better patriotism, higher 
 wisdom than the general income tax at this time and under 
 these circumstances. I wish to beat the income tax pro- 
 vision, because I think it is unwise and I wish to pass the 
 corporation tax provision because I think it is wise. 
 
 These extracts will perhaps suffice to show that the 
 corporation tax was not proposed and passed as an im- 
 portant and desirable addition to our fiscal system; nor 
 was any attempt made to justify it from an economic or 
 scientific standpoint. The avowed purpose of its advo- 
 cates was to defeat the general income tax and incidental- 
 ly to raise money to meet a temporary deficiency. This 
 was fully understood by the Democrats, but they were 
 in a position where they could not oppose the bill without 
 
 10 . Congressional Record, Vol. 44, Part III (June 29, 1909), 
 p. 3929.
 
 282 INCOME TAXATION 
 
 seeming to favor the corporations and to be acting in op- 
 position to an income tax law. When the vote was taken 
 on Senator Bailey's motion to substitute the income tax 
 amendment for the Corporation Tax Law there were 
 28 yeas and 47 nays 17 not voting. There were only 
 five Republicans, namely, Senators Borah, Bristow, 
 Clapp, Cummins and La Follette who voted for the in- 
 come tax and no Democrats who voted against it. 11 
 
 As was to be expected, the question of the constitu- 
 tionality of the law was soon brought before the courts. 
 The first of fifteen cases which reached the Supreme 
 Court of the United States was that of Stella P. Flint, 
 as General Guardian, etc., vs. Stone Tracy Company, 
 et al. It arose in Windsor, Vermont, and was well cal- 
 culated to bring out clearly the unequal operation of the 
 law. 
 
 A firm known as Tuxbury and Stone, after having 
 carried on a prosperous mercantile business for twenty- 
 nine years, dissolved and two new firms were formed. 
 One of these firms was Stone, Tracy & Company, which 
 carried on the old business, and which was formed into 
 a corporation in 1900. The other firm was Tuxbury & 
 Sons, who constructed a building and established a busi- 
 ness adjoining the original store, but did not incorporate. 
 As the two firms carried the same lines of goods, had 
 about equal capital and were side by side, the competition 
 was very keen. It was claimed that the firm which had 
 incorporated was placed at a great disadvantage as com- 
 pared with its rival, not only in being compelled to pay 
 
 11 . Congressional Record, Vol. 44, Part III (July 7, 1909), 
 p. 4348.
 
 THE CORPORATION TAX LAW 283 
 
 a tax from which the other was exempt, but also in be- 
 ing compelled to make disclosure of its indebtedness and 
 general financial condition. 
 
 The other cases which were brought to test the law 
 may be divided into four groups : Insurance companies ; 
 public service corporations; real estate companies and 
 miscellaneous companies, such as The Northern Trust 
 Company (Chicago), The Corn Exchange National 
 Bank, The American Multigraph Company, The Baltic 
 Mining Company and The Motor Taximeter Cab Com- 
 pany. 
 
 All of the above mentioned companies were corpora- 
 tions "organized for profit," and the fifteen cases were 
 argued together on March 2, 1910. The companies were 
 represented by able counsel and the various points which 
 were raised in their briefs are perhaps sufficiently in- 
 dicated by the following summary of the contentions in 
 the reply brief of Attorney General Wickersham and 
 Solicitor General Bowers : 
 
 First. The tax is not a direct tax upon the property, 
 real or personal, of the corporations, joint stock companies 
 or associations, or insurance companies which are required 
 to pay the tax. On the contrary, the tax is an excise, as the 
 statute expressly declares, upon "the carrying on or doing 
 business" by such companies ; and it therefore needs no ap- 
 portionment among the states according to population under 
 Section 2 of Article I or clause 4 of Section 9 of Article I 
 of the Constitution of the United States. 
 
 Second. The tax is not a direct tax upon shares of the 
 stockholders in the companies to the business of which the 
 tax attaches, or upon the income of such stockholders from 
 their shares. 
 
 Third. The tax does not become direct in the special 
 case of a company engaged mainly, or even solely, in the 
 business of handling or dealing in real estate.
 
 284 INCOME TAXATION 
 
 Fourth. The tax is not an infraction of the general 
 power of the states to authorize the formation of corpora- 
 tions and joint stock companies. 
 
 Fifth. The business of public service companies is not 
 intrinsically an operation of the state which created the com- 
 pany. Further, the United States may tax even a business 
 conducted for or by a state itself. 
 
 Sixth. The tax is not imposed upon state or municipal 
 bonds, or upon the income of such bonds, forming part of 
 the business assets of the company whose business is taxed ; 
 and the company's income from such bonds is to be included 
 in the computation of its net income. 
 
 Seventh. As an excise, the tax is uniform, though it is 
 laid upon other kinds of business than insurance only when 
 the business is conducted by a corporation or joint stock 
 company having shares of stock ; and the imposition of the 
 tax upon the business of such corporations and joint stock 
 companies, while the kindred business of individuals and 
 partnerships is not taxed, does not take property without 
 due process of law in violation of the Fifth Amendment to 
 the Constitution. 
 
 Eighth. None of the special rules prescribed by the 
 taxing statute produces any lack of necessary uniformity. 
 
 Ninth. The company required to pay the tax is not 
 subjected to any unreasonable search or seizure, or im- 
 properly required to incriminate itself, by any of the ad- 
 ministrative provisions of the statute. 
 
 Tenth. The tax may properly be collected in 1910, 
 though it is measured by the net income of the tax-paying 
 company during the calendar year 1909, of which seven 
 months had already passed when, on August 5, 1909, the 
 taxing statute was enacted. 
 
 Eleventh. If in any part or application this taxing 
 statute is unconstitutional, it should be sustained neverthe- 
 less in all its other parts and applications. 
 
 The most important point is, of course, the first. If 
 the tax is levied on property it is direct and therefore 
 prohibited unless apportioned according to population. 
 It was contended by the appellants that the tax was prac-
 
 THE CORPORATION TAX LAW 285 
 
 tically levied on the franchise. It is elementary that 
 franchises are property 12 and Justice Field had defined 
 "corporate franchise or business" as "the right or privi- 
 lege given by the State to two or more persons of being 
 a corporation, that is, of doing business in a corporate 
 capacity." 13 President Taft had described the tax in his 
 message as "an excise tax upon the privilege of doing 
 business as an artificial entity" and Senator Root had 
 admitted that the words of the law, "a special excise tax 
 with respect to the carrying on or doing business" were 
 equivalent to a tax on the right or privilege to transact 
 business. 14 It will be seen that these were rather danger- 
 ous admissions and the Attorney General, in his brief, 
 avoids the word "privilege" and claims that the tax is 
 levied on " the transaction or conduct of business." He 
 draws a rather fine distinction between franchises as 
 privileges and franchises as property and argues that it 
 is only the transacting of business or, at most the right 
 of transacting business, which is taxed. In other words 
 he claimed that the right to do and not the right to be 
 was taxed although of course the right to be without the 
 right to do would be of little value. 
 
 As the corporation taxes or, as they are called in the 
 Act, "Assessments," were payable on or before the 
 thirtieth day of June, it was expected that an early de- 
 cision of the fifteen cases would be reached; but, on the 
 last day of the term, May 31, 1910, Chief Justice Fuller 
 made the announcement that the cases would be restored 
 to the docket "for argument before a full bench." It 
 was thought by many that this action indicated a three to 
 four division among the judges upon the question of the 
 validity of the law. The re-argument will probably take 
 
 12 . Cooley on Taxation, 3d Ed. p. 686. 
 
 13 . Home Insurance Company v. New York, 134 U. S. 594. 
 
 14 . Congressional Record, Vol. 44, p. 4088.
 
 286 INCOME TAXATION 
 
 place in November or December, 1910, and it is of course 
 impossible to predict the result. Only two of the judges 
 who participated in the decision of the Pollock case 
 Judges Harlan and White remain, and the new judges 
 may look at the question involved from quite a different 
 standpoint. 
 
 In the meantime no effort has been made to enforce 
 the "publicity clause," which was considered a very im- 
 portant feature of the bill at the time it was passed. There 
 is probably a strong feeling in administration circles that 
 it would be injudicious to carry out the provisions of the 
 law literally in this respect until the Supreme Court has 
 passed upon the constitutionality of the measure. 
 
 The exact amount raised by the corporation tax has 
 not been made public. From a statement of the Treasury 
 Department, May 10, 1910, it appears that the sum of 
 $25,962,462.28 was levied and assessed in 37 states and 
 Hawaii in the months of January, February and March. 
 The eleven states which had not reported were Delaware, 
 Idaho, Maine, Mississippi, Nevada, Rhode Island, Utah, 
 Vermont, Wyoming, Arizona and Oklahoma. It seems 
 probable that the receipts from these states will bring the 
 total yield of the tax up to twenty-seven millions. The 
 number of returns was 231,243 and the amount collected 
 for penalties about $100,000. New York contributed 
 about one-fifth of the whole amount and more than 
 double the amount paid by all the southern states. 
 Pennsylvania was second and the four states of New 
 York, Pennsylvania, Illinois and Ohio paid about one- 
 half of the tax. 15 The yield of the tax has corresponded 
 very closely to the estimates which were made before it 
 went into operation. 
 
 15 . In Appendix F will he found a statement of the assess- 
 ments for the corporation tax for three months. This statement is 
 condensed from a tabulation by districts furnished the writer by 
 the Treasury Department.
 
 CHAPTER XIV. 
 
 THE PROPOSED SIXTEENTH AMENDMENT 
 TO THE CONSTITUTION. 
 
 Every amendment to the Constitution of the United 
 States marks an important step in the political history of 
 the Republic, and the proposed Sixteenth Amendment 
 which is designed to enlarge, or at least define, the power 
 of the Federal Government to tax incomes, is no ex- 
 ception. 
 
 The adoption of this amendment will not only operate 
 to strengthen the central Government in time of war or 
 other emergencies, but it may also mark the beginning 
 of a new fiscal policy a policy of gradual reduction of 
 tariff made possible by resorting to income taxation. The 
 amendment was proposed with but little debate or public 
 discussion, and it is safe to say that many people did not 
 understand its full significance. Under these circum- 
 stances it has seemed proper to give a brief review of the 
 events which led to its proposal. Article V of the Con- 
 stitution of the United States provides that 
 
 The Congress, whenever two-thirds of both Houses 
 shall deem it necessary, shall propose amendments to this 
 Constitution, or, on the application of the legislatures of 
 two-thirds of the several States shall call a convention for 
 proposing amendments which in either case shall be valid 
 to all intents and purposes as part of this Constitution when 
 ratified by the legislatures of three-fourths of the several
 
 288 INCOME TAXATION 
 
 States, or by conventions in three-fourths thereof, as the 
 one or the other mode of ratification may be proposed by 
 the Congress. 
 
 When it became apparent, by the decision of the Su- 
 preme Court in the Pollock case, that a Federal income 
 tax could not be constitutionally levied except upon the 
 basis of apportionment according to population, and that 
 the powers of the National Government in respect to in- 
 come tax had become involved in so much doubt and un- 
 certainty that the ablest lawyers and judges were unable 
 to agree regarding them, there was a general feeling that 
 the situation was intolerable and could only be relieved 
 by a clear and authoritative definition of the powers of 
 the Federal Government in regard to direct taxation. 
 
 As has been shown in the previous chapter, the 
 Democratic platform of 1008, urged the submission of 
 a constitutional amendment "specifically authorizing Con- 
 gress to levy and collect taxes upon individual and cor- 
 porate incomes." 
 
 President Taft, in his speech of acceptance of July 
 28, 1908, called attention to this plank of the Democratic 
 'platform and said : "In my judgment an amendment to 
 the Constitution for an income tax is not necessary." But 
 after his inauguration his views upon this point under- 
 went some change, as is shown by the following extracts 
 from his special message of June 16, 1909 : 
 
 Although I have not considered a constitutional amend- 
 ment 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, by a two-thirds vote, 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 in proportion to popula-
 
 THE SIXTEENTH AMENDMENT 289 
 
 tion * * * It is said that the difficulty and delay in secur- 
 ing the approval of three-fourths of the States will destroy 
 the chance of adopting the amendment. Of course, no one 
 can speak with certainty upon this point, but 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 and that they will secure the 
 adoption of the amendment in the States if proposed to them. 
 
 Prior to this date however on April 28, 1909, Senator 
 Norris Brown (Republican) of Nebraska, had intro- 
 duced Senate Joint Resolution No. 39, which read as 
 follows : 
 
 Resolved by the Senate and House of Represenatives of 
 the United States of America in Congress assembled (two- 
 thirds of both Houses concurring), that the following sec- 
 tion be submitted to the legislatures of the several States, 
 which, when ratified by the legislatures of three-fourths of 
 the States, shall be valid and binding as a part of the Con- 
 stitution of the United States : 
 
 The Congress shall have power to lay and collect taxes 
 on incomes and inheritances, from whatever source derived, 
 without apportionment among the States and without re- 
 gard to any census or enumeration. 
 
 This resolution was subsequently withdrawn and re- 
 introduced, with the proposed amendment in the follow- 
 ing form : 
 
 The Congress shall have power to lay and collect direct 
 taxes on incomes without apportionment among the several 
 States according to population. 
 
 It will be noticed that the reference to inheritances, 
 together with the clauses, "from whatever source de- 
 rived" and "without regard to any census or enumera- 
 tion," were stricken out and the word "direct" inserted 
 before "taxes." In this form the resolution was read 
 the first and second times and referred to the Senate 
 Committee on Finance. When it emerged from this
 
 29O INCOME TAXATION 
 
 committee and was finally concurred in by both Houses, 
 after but little debate, 1 it had been changed to read as 
 follows : 
 
 Article XVI. The Congress shall have power to lay 
 and collect taxes on income, from whatever source derived, 
 without apportionment among the several states and with- 
 out regard to any census or enumeration. 
 
 It was unfortunate that the phrase "from whatever 
 source derived" was restored, as the amendment would 
 have been equally effective without it, and the four words 
 in question have raised a storm of objection from those 
 who construe them as an express permission to the 
 Federal Government to tax state securities and as, there- 
 fore, constituting a menace to state rights. It is true 
 that these words, or their equivalent, appeared repeatedly 
 in each of the Civil War Income Tax Laws, the Income 
 Tax Law of 1894, and the present Corporation Tax Law ; 
 but the sinister possibilities which were thought to lurk 
 behind the words "from whatever source derived" were 
 not suspected until quite recently. 
 
 In transmitting the proposed amendment to the legis- 
 lature of New York, January 5, 1910, Governor Hughes 
 sent a special message in which he said : 
 
 I am in favor of conferring upon the Federal Govern- 
 ment the power to lay and collect an income tax without ap- 
 portionment among the States according to population. I 
 believe that this power should be held by the Federal 
 Government so as to properly equip it with the means of 
 
 1 . Joint Resolution No. 40 proposing the Sixteenth Amendment 
 to the Constitution was passed by the Senate July 5, 1909, by a 
 unanimous vote of 77 yeas 15 not voting. Congressional Record, 
 Vol. 44, Part IV, p. 4121. In the House of Representatives the 
 Resolution was ordered to a third reading and passed July 12, 1909, 
 by a vote of 318 yeas to 14 nays 55 not voting. Congressional Rec- 
 ord, Vol. 44, Part IV, p. 4440.
 
 THE SIXTEENTH AMENDMENT 29! 
 
 meeting national exigencies * * * The comprehensive 
 words, from whatever source derived, if taken in their 
 natural sense, would include not only incomes from ordinary 
 real or personal property, but also incomes derived from 
 State and municipal securities. * * * The immunity 
 from Federal taxation that the State and its instrumentalities 
 now enjoy is derived not from any express provision of the 
 Federal Constitution, but from what has been deemed to be 
 necessary implication. Who can say that any such implica- 
 tion with respect to the proposed tax will survive the adop- 
 tion of this explicit and comprehensive Amendment? 
 
 The message closed with a recommendation that the 
 amendment be not ratified. 
 
 In opposition to the view taken by Governor Hughes, 
 Mr. Edwin R. A. Seligman filed an elaborate argument 
 in which his main contentions were : 
 
 1. That the interpretation of the legal force of the 
 proposed amendment was incorrect. 
 
 2. That even if the legal interpretation were correct 
 the Governor had failed to take into account certain 
 economic facts which would prevent the consequences he 
 feared. 
 
 3. That even if the views expressed in the message 
 were correct and it were true that the amendment would 
 operate to change the law in the direction indicated, there 
 were valid reasons why the law should be so changed and 
 the amendment prevail. 
 
 He construed the words "from whatever source de- 
 rived" as equivalent to "irrespective of source," or a 
 shorter way of saying "from all sources alike whether 
 the source be one that previously made an apportionment 
 necessary or not." 
 
 He made it clear that the amendment contemplated a 
 general income tax and not a special tax, and that the 
 effect of the tax could therefore not operate to the special 
 disadvantage of state securities.
 
 292 INCOME TAXATION 
 
 He also called attention to the fact that while it might 
 well be granted that the States cannot tax the Federal 
 securities, it by no means follows that the Federal 
 Government ought not to have the power to tax State 
 or local bonds. 
 
 On February 17, 1910, Senator Root wrote a letter 
 to Senator Davenport, who championed the amendment 
 in the New York Senate, in which he dissented from the 
 view expressed by Governor Hughes, and urged the ratifi- 
 cation of the amendment. He argued that the proposed 
 amendment does not enlarge the taxing power of the 
 National Government, but merely relieves from the rule 
 of apportionment the power which now exists to tax in- 
 comes. In his opinion the words "from whatever source 
 derived" were obviously intended to make the exemption 
 from the rule of apportionment conclusive and applicable 
 to all taxes on incomes, and he gave it as his view "that 
 no danger to the powers- or instrumentalities of the States 
 is to be apprehended from the adoption of the amend- 
 ment." 
 
 On April 11, 1910, a memorandum was submitted to 
 the legislature in opposition to the amendment, which was 
 signed by Joseph H. Choate, William D. Guthrie, Victor 
 Morawetz, Austen S. Fox and John G. Milburn. There 
 was also a separate concurring memorandum signed by 
 Francis Lynde Stetson. 
 
 The great eminence and recognized ability of the men 
 who signed this document no doubt impressed the legis- 
 lature and contributed to the defeat of the amendment in 
 New York. The ground taken in the memorandum was 
 somewhat different from that occupied by Governor 
 Hughes, as a considerable portion of the argument was
 
 THE SIXTEENTH AMENDMENT 293 
 
 devoted to objections to a Federal income tax in general 
 and to a graduated or progressive income tax in 
 particular. 
 
 In the Southern states, and particularly in Virginia, 
 the chief objection to the amendment seems to be based 
 upon an impression that it is a grant of power to the 
 Federal Government "and, to the extent of that grant, a 
 diminution of the reserved rights of the States." 2 It 
 might be suggested, in answer to this view, that Congress 
 undoubtedly has the power already to tax incomes by ap- 
 portionment according to population, and under that 
 method the Southern states would fare worse than under 
 the kind of income tax authorized by the amendment. 
 The negroes would be counted in the population, but 
 would not contribute proportionally to the tax. 
 
 The idea of amending that clause of the Constitution 
 which refers to direct taxes is by no means a new one. 
 As long ago as 1793 an amendment was proposed, pro- 
 viding that every tax should be deemed direct other than 
 taxes on imports, excises, transfers of property and legal 
 proceedings. 3 In 18G5, Representative I. C. Sloan, of 
 Wisconsin, introduced a resolution to amend the Con- 
 stitution so that direct taxes should be apportioned among 
 the several States according to the appraised value of 
 taxable property therein. 
 
 A similar resolution was proposed by Senator James 
 R. Doolittle, February 6, 1866, and it reappeared six 
 times between 1876 and 1883, being introduced each 
 
 2 . See letter of Richard E. Byrd, Speaker of House of Dele- 
 gates (Va.), to New York Sun May 3, 1910. 
 
 3 . Ames, Herman V. "The proposed Amendments to the Con- 
 stitution during the first century of its history," in Annual Report of 
 the American Historical Association, Vol. VIII, Part 2, p. 242.
 
 294 INCOME TAXATION 
 
 time by Senator Regan of Texas. These amendments 
 were opposed upon the ground that they would constitute 
 a strong inducement to undervaluation and it was sug- 
 gested that there would be necessity for another law re- 
 quiring the States to "cheat equally." 
 
 There have been in all about twenty resolutions which 
 proposed to amend the constitution in respect to direct 
 taxes, but none of them has received the approval of 
 Congress except the proposed Sixteenth Amendment. 4 
 
 The number of state legislatures which have taken 
 definite action upon the question of ratifying the Six- 
 teenth Amendment up to this time (October, 1910), is 
 thirteen. Of this number there are eight which have 
 ratified the amendment by the requisite vote, namely : 
 Alabama, Georgia, Illinois, Kentucky, Maryland, Mis- 
 sissippi, Oklahoma and South Carolina. There are four 
 which have voted against ratification New York, 
 Massachusetts, Rhode Island and Virginia while in 
 Louisiana the Senate and the House were unable to agree 
 and it was decided to submit the question to the voters at 
 the next primary election. It thus appears that there are 
 still thirty-six states in which the question is likely to 
 arise at their next legislative sessions. 
 
 As the whole number of states is now forty-eight, 
 and eight states have voted in favor of ratification, it will 
 be necessary to secure favorable action on the part of the 
 legislatures in twenty- four additional states in order to 
 
 4 . There have been, since the beginning of the Government, 
 some 1,500 resolutions, containing over 2,000 proposed constitutional 
 amendments, which have been submitted in one or both branches of 
 Congress. Of this large number only 19 amendments have suc- 
 ceeded in securing the requisite two-thirds vote and have been sub- 
 mitted to the States for ratification. Congressional Record, Vol. 44, 
 July 5, 1909, p. 4109.
 
 THE SIXTEENTH AMENDMENT 295 
 
 make the amendment effective. A vote against ratifica- 
 tion does not preclude a ratification at a later date, 5 but 
 a vote in favor of ratification is final and cannot be re- 
 called or rescinded. 6 There is no limitation upon the 
 period within which an amendment to the constitution 
 may be ratified, 7 and it is beyond the power of Congress 
 to recall an amendment which has once been submitted to 
 the states. 
 
 Of the thirty-six states which have not yet acted upon 
 the amendment all but two will have sessions of their 
 legislatures in the early part of January, 1911. The next 
 session of the Vermont legislature, after the October 
 session in 1910, occurs October 5, 1912, and the 
 Louisiana legislature does not meet again until May in 
 the same year. As to the states which have voted against 
 ratification, but may possibly change their votes, New 
 York and Rhode Island have legislative sessions in Janu- 
 ary, 1911, while in Massachusetts and Virginia the legis- 
 latures do not convene again until January, 1912. 
 
 The following facts regarding the thirteen states 
 which have acted upon the amendment may be of interest 
 in the remaining states where the legislatures still have 
 the question before them. 
 
 5 . Thus Georgia rejected the Fourteenth Amendment Novem- 
 ber 13, 1866, but ratified it December 21, 1868; North Carolina re- 
 jected it December 4, 1866, but ratified it July 4, 1868. 
 
 6 . The States of Ohio and New Jersey ratified the Fourteenth 
 Amendment, but subsequent legislatures in those states sought to 
 rescind that action. Congress, however, included Ohio and New 
 Jersey among the Commonwealths which it declared by joint reso- 
 lution to have ratified the Fourteenth Amendment. 
 
 7 . In 1873 the Ohio Senate, acting upon the theory that, once 
 proposed, an amendment to the Constitution is always open to rati- 
 fication, and wishing to express its emphatic disapproval of the so- 
 called "salary grab," by which salaries of members of Congress were 
 increased, passed a resolution ratifying an amendment relating to 
 Congressional salaries, which had been submitted to the States by 
 the first Congress in 1789 ! See Jameson, J. A., A Treatise on Con- 
 stitutional Conventions, 4th Ed., Chicago, 1887.
 
 296 INCOME TAXATION 
 
 "Alabama was the first of the states to ratify the 
 amendment. The manner in which the ratification was 
 made is of interest as the form of the resolution adopted 
 has been followed in some other states : 
 
 House Joint Resolution No. 7, which was approved 
 by the Governor August 17, 1909, recites in the preamble 
 that 
 
 Whereas the Congress of the United States on July , 
 1909, adopted a joint resolution proposing an amendment 
 to the Constitution of the United States as follows : [here 
 follow resolution and proposed amendment.] 
 
 Now, therefore, be it resolved by the legislature of the 
 State of Alabama, that the foregoing amendment to the 
 Constitution of the United States be and the same is hereby 
 ratified to all intents and purposes as a part of the Con- 
 stitution of the United States. 
 
 2. That the Governor of this State is hereby requested 
 to forward to the President of the United States an au- 
 thentic copy of the foregoing joint resolution. 
 
 The Governor approved the House Joint Resolution; 
 but the better opinion seems to be that such approval is 
 not necessary, and that it is not within the province of 
 the Governor to act upon a resolution. The Constitution 
 requires simply that the amendment shall be ratified by 
 the legislatures of three- fourths of the states and it has 
 been argued that under such circumstances the legislature 
 acts in the capacity of a convention and not as it would 
 in the performance of ordinary legislative functions. 
 
 In Georgia the amendment was ratified in the state 
 Senate by a vote of 23 to 18, July 10, 1910. In the House 
 the vote stood 129 for, and 32 against ratification. 
 
 In Illinois the resolution \vas in the following form : 
 
 Whereas the Congress of the United States has pro- 
 posed to the several States the following amendment to the 
 Federal Constitution. 
 
 [Here follow resolution and proposed amendment.]
 
 THE SIXTEENTH AMENDMENT 297 
 
 Further be it resolved by the Senate and House of Rep- 
 resentatives concurring therein that the State of Illinois by 
 its legislature ratifies and assents to said amendment. 
 
 The ratification by the Senate took place February 
 9, 1910, and the House concurred in the Senate action 
 March 1, following. 
 
 Kentucky. While this state is usually reckoned 
 among those which have ratified the amendment, there is 
 some question as to the regularity of the proceedings, 
 and the ratification has not yet been certified to Congress. 
 In answer to an inquiry Governor Wilson writes as 
 follows : 
 
 There is a dispute as to the record and the Attorney 
 General is investigating it. Both Houses originally ratified 
 the amendment, practically unanimously, but in such haste 
 (after a caucus resolution of the Democrats) that they 
 omitted the words "on incomes" in the engrossed copy which 
 reached me. I called their attention to the omission and 
 thereupon the papers reported that the resolution had been 
 again adopted by both Houses in the correct form. But the 
 record brought to me shows that they attempted to correct 
 the engrossment of a bill which had been completely en- 
 grossed, signed by the presiding officers, transmitted to the 
 Governor and was in his hands. This bill was afterwards 
 vetoed because of the error in omitting the words "on in- 
 comes" and I then sent to both Houses the official com- 
 munication of the Secretary of State together with an 
 official copy of the joint resolution for their action. It (the 
 resolution) passed the House, and the Senate voted down 
 a motion to call it from the orders of the day and it did not 
 pass the Senate in that shape. I cannot advise you as to 
 whether it is adopted or not nor as to the date. 
 
 The complications which have arisen in this instance 
 may become quite important if the vote of Kentucky 
 should become necessary to make up the total of thirty- 
 six states favoring the amendment. The Joint Resolu- 
 tion ratifying the amendment (H. R. No. 4) is printed 
 in the Acts of 1910 and is as follows :
 
 298 INCOME TAXATION 
 
 Resolution ratifying the i6th Amendment to the Con- 
 stitution of the United States. 
 
 1. Whereas, the Congress of the United States on July 
 , 1909, adopted a Joint Resolution proposing an amend- 
 ment to the Constitution of the United States, as follows : 
 
 [Here follow correct copies of the Resolution and pro- 
 posed amendment.] 
 
 And the foregoing proposed amendment having been 
 laid before the Legislature of the State of Kentucky, for 
 consideration and action : 
 
 Now, Therefore, Be It Resolved, by the General As- 
 sembly of the Commonwealth of Kentucky that the forego- 
 ing amendment to the Constitution of the United States, be 
 and the same is hereby ratified to all intents and purposes, 
 as a part of the Constitution of the United States. 
 
 2. That the Governor of this State is hereby requested 
 to forward to the President of the United States an authentic 
 copy of the foregoing joint resolution. 
 
 The resolution appears to be in due form although the 
 request to the Governor might properly have specified 
 that certified copies should be forwarded, not only to the 
 President, but also to the Vice-President and the Speaker 
 of the House of Representatives. The words "on in- 
 comes" do not occur in the above resolution but only in 
 the copy of the amendment. 
 
 Upon the question of whether or not the ratification 
 was effective we venture the following suggestions : 
 
 1. As to the clerical error in copying the amend- 
 ment proposed by Congress, the general rule is that 
 "legislative enactments are not any more than any other 
 writings to be defeated on account of mistakes, errors or 
 omissions, provided the intention of the legislature can 
 be collected from the whole statute ; and the title and pre- 
 amble may be referred for this purpose." 8 In this in- 
 
 8 . Sutherland on Statutes and Statutory Construction, Section 
 260. See, also, Division of Howard County, 15 Kansas, 194.
 
 THE SIXTEENTH AMENDMENT 299 
 
 stance the law is complete as published and the error is 
 latent. Justice David J. Brewer, while Associate Justice 
 of the Supreme Court of Kansas, gave his views of a 
 somewhat similar case as follows : 
 
 Is a proposition to amend the Constitution in the nature 
 of a criminal proceeding, in which the opponents of change 
 stand as defendants in a criminal action, entitled to avail 
 themselves of any technical error, or mere verbal mistake; 
 or is it rather a civil proceeding in which those omissions 
 and errors which work no wrong to substantial rights are 
 to be disregarded ? Unhesitatingly, we affirm the latter. 9 
 
 2. The approval or veto of the Governor would seem 
 to be without effect for the following reasons : 
 
 a. At the time the Constitution of the United States 
 was adopted there was only one state in which the Gover- 
 nor had power to veto bills. 
 
 b. The provisions of the Constitution for ratification 
 by conventions would indicate that the approval of the 
 Governor was not contemplated. 
 
 c. It has been repeatedly held by the courts that 
 amendments of state constitutions do not require the ap- 
 proval of the Governor to become effectual, and that the 
 veto of an executive can only be exercised when his as- 
 sent is necessary to perfect a law. 10 
 
 d. While it is true that Section 88 of the Fourth 
 Constitution of the State of Kentucky expressly provides 
 
 9 . "Constitutional Prohibitory Amendment" case, 24 Kansas, 
 710. 
 
 10 . Concurring opinion of McEnery in State ex rel. Morris v. 
 Secretary of State, 43 Louisiana Annual Reports, 590-6G5, and cases 
 cited. In re Senate File No. 31, 25 Nebraska, 864. See, also, Jame- 
 son, J. A. A Treatise on constitutional conventions, 556, in which 
 it is explained that an act which is not legislative in its nature, and 
 when perfect and operative to the full extent intended by its framers, 
 is yet destitute of all vigor as a law, does not come within the con- 
 stitutional provisions requiring approval by the Governor.
 
 3OO INCOME TAXATION 
 
 that "every order, resolution or vote, in which the con- 
 currence of both Houses may be necessary * * * * 
 shall be presented to the Governor, and, before it shall 
 take effect, shall be approved by him," it is also true that 
 similar provisions are found in the Constitution of the 
 United States in reference to Congress and the President, 
 and the Supreme Court of the United States has held that 
 the approval of the President is not necessary to validate 
 the action of Congress in reference to a constitutional 
 amendment. 11 
 
 e. Kentucky is not without a precedent in this mat- 
 ter. In the case of the Thirteenth Amendment to the 
 Constitution of the United States 12 the Kentucky legis- 
 lature voted against ratification and the resolution was 
 submitted to Governor Bramlette for approval or veto. 
 The Governor adopted the view that his duties were 
 purely ministerial in such a case and although he re- 
 gretted deeply the action of the legislature, he declined 
 to return the resolution with his dissent on the ground 
 that the action of the legislature was absolutely complete 
 without his approval. 
 
 In Louisiana the amendment was ratified in the lower 
 House July 2, 1910, by a vote of 77 to 31. The Senate 
 voted to submit the matter to the voters by referendum at 
 the next primary election. The Conference Committee, 
 which was then appointed, was unable to reach an agree- 
 
 ". Hollingsworth v. Virginia, 3 Dallas, 378-380. See note by 
 Justice Chase in which he says: "The negative of the President 
 applies only to the ordinary cases of legislation : he has nothing to dp 
 with the proposition or adoption of amendments to the constitution." 
 
 12 . This was the "Emancipation Amendment," abolishing sla- 
 very. Kentucky and Delaware were the only states which voted 
 squarely against ratification. The amendment was proclaimed as 
 adopted December 18, 1865.
 
 THE SIXTEENTH AMENDMENT 
 
 301 
 
 merit and, unless a special session is convened, no further 
 action is likely to be taken until the next meeting of the 
 Legislature in May, 1912. This result was due largely 
 to a factional contest in the ranks of the Democratic 
 party, Governor Sanders opposing the amendment and 
 the Speaker, Garland Dupre, favoring it. Some of the 
 representatives of the sugar districts also objected to a 
 Federal income tax on the ground that it might pave the 
 way for a reduction in the tariff on sugar. 13 
 
 Massachusetts was the second state to reject the 
 amendment by the votes of both houses. On the fourth 
 of May, 1910, the House of Representatives, after two 
 days' debate, decided against ratification by a vote of 
 126 to 101. Of those who favored ratification 38 were 
 Republicans, 62 Democrats and one Socialist. Of those 
 who opposed ratification, 124 were Republicans and 2 
 Democrats. There were 11 absentees of whom 7 were 
 Republicans and 4 Democrats. In the Senate the resolu- 
 tion was killed by a vote of 23 to 1, May 19, 1910. The 
 question was fully presented to the electorate before 
 legislative action was taken. The Democratic State con- 
 vention followed the example of the National convention 
 in favoring ratification. The Republican convention, 
 while not antagonizing the principle of income taxation, 
 seriously questioned the advisability of enlarging the 
 Federal power in this respect, lest it should result "in 
 driving the states out of a field of taxation which sound 
 economic policy might make it advisable for them to re- 
 serve for themselves." 
 
 1S . See Vicksburg Herald, June 1, 1910.
 
 3O2 INCOME TAXATION 
 
 Mississippi. The Joint Resolution ratifying the 
 amendment is slightly different in form from that of any 
 other state, and is as follows : 14 
 
 JOINT RESOLUTION of the Legislature of the State 
 of Mississippi ratifying and approving the proposed amend- 
 ment to the Constitution of the United States relative to in- 
 come tax. 
 
 WHEREAS, The Sixty-first Congress of the United 
 States of America, at the first session begun and held in the 
 city of Washington, on Monday the I5th day of March, 
 1909, proposed an amendment to the Constitution of the 
 United States, in words and figures as follows : 
 
 Article XVI. Congress shall have power to lay and 
 collect taxes on incomes from whatever source derived with- 
 out apportionment among the several States, and without 
 regard to any census of enumeration : 
 
 Now, THEREFORE, be it resolved by the Legisla- 
 ture of the State of Mississippi, That the foregoing resolu- 
 tion, being the sixteenth amendment to the Constitution of 
 the United States, be, and the same is hereby approved and 
 ratified. 
 
 Adopted by the House of Representatives the 29th day 
 of January, 1910. 
 
 H. M. STREET, 
 
 Speaker House of Representatives. 
 
 Adopted by the Senate the 7th day of March, 1910. 
 
 J. L. HEBRON, 
 
 President pro tern, of the Senate. 
 
 Approved by the Governor the nth day of March, 1910. 
 
 E. F. NOEL, 
 
 Governor. 
 
 Passing by the preamble, the phraseology of which 
 suggests the caption of a court order, it will be observed 
 that, as in Kentucky, the amendment is not quoted cor- 
 
 ". Chapter 361, H. J. R. No. 14, Laws of Mississippi, 1910, p. 
 308.
 
 THE SIXTEENTH AMENDMENT 303 
 
 rectly, "of" being substituted for "or" before the last 
 word, so that it reads "census of enumeration, instead of 
 "census or enumeration." Presumably this is a printer's 
 error. There seems to have been but very little opposi- 
 tion to the amendment and a letter from the Governor 
 states that the resolution was passed by an "overwhelm- 
 ing" vote in each House. 
 
 New York. As has been already shown in this chap- 
 ter, the question of ratification was argued before the 
 New York legislature by men of great ability. In the 
 Assembly the friends and opponents of ratification were 
 very evenly divided. The total membership of the As- 
 sembly is 150 and, as it was considered that a majority 
 of all the members elected, and not merely a majority of 
 the members voting, was necessary to effective ratifica- 
 tion, 76 votes were needed to pass the resolution. The 
 first vote, which was taken April 20, 1910, stood 74 to 66 
 in favor of ratification, 10 members being absent. The 
 question of reconsideration came up May 3, and the vote 
 then stood 75 to 67 there being 8 absentees. Dividing 
 this vote according to political affiliations it appears that 
 64 Republicans and 3 Democrats were opposed to recon- 
 sideration, while 27 Republicans and 48 Democrats 
 favored it. 
 
 On May 17, the New York Senate passed the Daven- 
 port resolution, ratifying the 16th Amendment, by a vote 
 of 26 to 20. This was an apparent majority of six votes ; 
 but the full 26 votes were necessary to constitute a 
 majority of the members elected. Politically, those vot- 
 ing for ratification comprised 13 Republicans and 13 
 Democrats, while the opposition consisted of 19 Re- 
 publicans and one Democrat.
 
 304 INCOME TAXATION 
 
 The question came before the Assembly for the third 
 time May 25, upon the motion of Assemblyman Murray 
 to suspend the rules in order to take up the Davenport 
 resolution which had been adopted by the Senate. The 
 motion was lost by a vote of 75 to 64, being one vote less 
 than the number needed. 
 
 The fact that a measure which was proposed by a 
 Republican President and passed by a Republican Con- 
 gress should meet with defeat in a strongly Republican 
 legislature, has excited some comment especially in view 
 of the fact that a large majority of the Democratic mem- 
 bers favored the amendment. Various explanations have 
 been offered of which the following seems plausible : 
 
 The reason the amendment failed was because a majority 
 of the Assemblymen were unwilling to have the great wealth 
 of the State of New York taxed for the benefit of the South 
 and West whose Congressmen are in the majority and whose 
 people would bear but little of the burden. 15 
 
 It is probable that a renewed effort will be made to 
 secure a majority in favor of ratification at the next ses- 
 sion of the legislature. 
 
 Oklahoma. House Joint Resolution No. 5, entitled 
 "A Resolution ratifying an amendment proposed by the 
 Sixty-first Congress of the United States of America, on 
 the fifteenth day of March, one thousand nine hundred 
 and nine, to the Constitution of the United States and 
 designated as Article Sixteen" was recommended by the 
 Governor, adopted by both Houses of the legislature and 
 approved March 14, 19 10. 16 
 
 15 . See authorized statement of Assemblyman Seymour Low- 
 man in Elmira (N. Y.) Advertiser of May 7, 1910. 
 
 16 . Laws of Oklahoma, 1910, p. 275.
 
 THE SIXTEENTH AMENDMENT 305 
 
 Rhode Island. As was to be expected in a state where 
 the protection sentiment is strong, the amendment failed 
 of ratification April 29, 1910, a large majority favoring 
 rejection in each House. The Governor was requested 
 in the resolution to transmit a copy to the Secretary of 
 State of the United States an entirely unnecessary pro- 
 ceeding. 
 
 Contrary to the example of Senator Root, who loyally 
 championed the amendment before the New York legis- 
 lature, Senator Aldrich of Rhode Island did not make 
 any effort to secure the ratification of the amendment in 
 his own state. 
 
 South Carolina. The ratification of the sixteenth 
 amendment is embodied in Law No. 608, which, after the 
 usual preamble and recitals, reads as follows : 
 
 Section I. Be it Resolved by the Senate and House of 
 Representatives of the State of South Carolina, 
 
 That the said proposed amendment to the Constitution 
 of the United States of America be and the same is hereby 
 ratified by the General Assembly of the State of South 
 Carolina. 
 
 Section 2. That certified copies of this preamble and 
 Joint Resolution be forwarded by the Governor of this State 
 to the President of the United States, to the presiding officer 
 of the United States Senate and to the Speaker of the 
 United States House of Representatives. 
 
 The Resolution was approved by the Governor 
 February 23, 1910. 
 
 Section 2 of the Resolution is commended as being 
 more complete and accurate in form than any of the other 
 resolutions which have been quoted. 
 
 Virginia. In this state the Senate voted in favor of 
 ratification, but the House of Delegates on the seventh of
 
 306 INCOME TAXATION 
 
 March, 1910, refused, by a vote of 50 to 33, to order to 
 engrossment the bill ratifying the amendment. The chief 
 reason given for opposing ratification as stated by 
 Speaker Byrd in a letter to the New York Sun, dated 
 May 3, 1910, was that the proposed amendment "is a 
 voluntary invitation to the Federal government to invade 
 and occupy the innermost citadel of what remains of the 
 reserved rights of the states." 
 
 It will be seen by the above resume of the action thus 
 far taken by state legislatures, that other considerations 
 than the mere desirability of a Federal income tax have 
 in a number of instances had controlling weight. Of the 
 states which are still to consider the question of ratifica- 
 tion it is expected that Connecticut, New Hampshire, 
 New Jersey, Pennsylvania and Delaware will vote ad- 
 versely to the amendment. This would increase the num- 
 ber of rejections to nine. Among the doubtful states are 
 Vermont, Maine, Louisiana and Ohio; but it should be 
 noted that the Republican State convention in Maine and 
 the Democratic State convention in Ohio have declared in 
 favor of ratification. It should also be remembered that 
 the rejection of the amendment by thirteen states is not 
 final, as subsequent legislatures, especially in states where 
 the vote has been very close, may decide in favor of 
 ratification.
 
 CHAPTER XV. 
 
 SUMMARY. 
 
 The great variety of methods which have been ap- 
 plied in the taxation of income, is at once a tribute to the 
 ingenuity of the human mind and an indication that this 
 form of taxation is still in an experimental stage. As no 
 two countries employ the same system it is evident that 
 no plan has yet been devised possessing such superlative 
 merits as to commend it for general adoption. On the 
 other hand, it is probably true that nearly every country 
 which has introduced an income tax in recent years has 
 endeavored to profit to some extent by the experiences of 
 other nations. But this can hardly be said of the United 
 States. The income tax laws thus far adopted in this 
 country would seem to have been drawn largely by men 
 who had given the subject but little study and who had 
 only the vaguest ideas of what had been accomplished in 
 other lands. The crudities and imperfections which are 
 only too apparent in these laws are due in part to the fact 
 that political considerations have influenced those who 
 framed them. Important fiscal measures of this character 
 should be formulated by commissions composed of men 
 who are reasonably free from partisan bias and whose 
 learning and abilities render them fitted for such a task.
 
 308 INCOME [TAXATION 
 
 It is a great mistake to suppose that the intricate problem 
 of how to tax incomes in such manner that the burden 
 shall be equally distributed can be solved by any simple 
 formula. Income taxation looks to the ability of the in- 
 dividual, and as the abilities of human beings are in- 
 finitely varied, a vast number of complex situations arise 
 which can only be met by a law of great range and flexi- 
 bility. Such a law is not likely to be devised at the first 
 attempt. It must to a large extent be a matter of growth 
 and development along practical lines. Such growth and 
 development will hardly take place as the result of the 
 efforts of any one individual and perhaps not through the 
 united efforts of any one national government; but rather 
 by a process of gradually sifting out that which has been 
 proven best by the experiences of many men and many 
 peoples. If the Federal government of the United States 
 is to enter the field of income taxation it would do well 
 to investigate the methods of those foreign countries 
 which have been most successful in this field, and begin 
 not where they began but where they left off, avoiding 
 their mistakes and adopting those features of their sys- 
 tems which have stood the test of practical application. 
 
 It has been the aim of this book to review, in such 
 manner as to make them readily available for reference 
 and comparison, the practical results of income taxation 
 in many countries. While the work has been necessarily 
 incomplete and fragmentary, it may serve to point the 
 way to a field of investigation which, up to this time, has 
 been much neglected. 
 
 In taking a broad view of this subject, we note a few 
 salient facts which it has seemed worth while to present 
 in the form of a brief summary. It should be premised
 
 SUMMARY 309 
 
 however that comparative statistics relating to income 
 taxation are not of the sort which can be collated with 
 scientific precision, but are rather in the nature of mere 
 approximations. Any attempt at generalization is met by 
 serious difficulties arising not only from the widely dis- 
 similar and often complicated methods in vogue, but also 
 from the incompleteness, inaccuracy and lack of uni- 
 formity in statistical records. 
 
 Population of income-taxing countries. The countries 
 in which incomes are taxed represent a population of 
 540,000,000 or more than a third of the estimated census 
 of the globe. If the United States and France join the 
 ranks of the income-taxing countries this number will be 
 swelled by the addition of 120,000,000. 
 
 Recent growth of income taxation. That the income 
 tax laws now in force are of comparatively recent origin 
 is shown by the fact that the average of the dates when 
 they went into effect in fifty-two foreign countries and 
 states is found in the year 1881. If we except England, 
 Bavaria, Saxony and four Swiss cantons where income 
 taxes have been in force for long periods, the average 
 date of the beginning of income taxation in the remain- 
 ing forty-five states and countries would be in the year 
 1899. In this connection it is a noteworthy fact that no 
 foreign country which has adopted an income tax within 
 the past twenty-five years has seen fit to abandon it. 
 
 Federal and State taxation. There are only ten of the 
 large countries which have what might be called federal 
 income taxes that is to say, income taxes levied by the 
 general government for its own needs as distinguished 
 from those levied by the minor political subdivisions. The 
 ten larger countries alluded to are Austria, Denmark,
 
 3IO INCOME TAXATION 
 
 England, Holland, Hungary, Italy, Japan, Norway, Spain 
 and Sweden. In Denmark, Holland and Norway there 
 is also local taxation of income by cities and communes. 
 Allusion is often made to the Australian, the Swiss and 
 the German income taxes, but, as has already been pointed 
 out, neither the Australian Commonwealth, the Swiss 
 Confederation nor the German Empire levies any income 
 tax. 
 
 General characteristics of systems. In the Australian 
 States and New Zealand the methods in vogue are charac- 
 terized by high exemptions, abruptly graded rates, com- 
 binations with single tax and sharp differentiation in 
 favor of incomes from personal exertion as against in- 
 comes from property and earnings of corporations. In 
 Japan on the other hand there is a very small exemption 
 and a lower rate for corporations than for individuals. 
 In England and several of her colonies, as also in Hawaii, 
 there is a tendency to high exemptions and proportional 
 or slightly graduated scales of rates. The principle of 
 collection of income at the source has been developed 
 more thoroughly in England than in any other country. 
 
 Upon the European continent, where it may fairly be 
 said that the subject of income taxation has received the 
 most careful study, it will be found that uniformly low 
 exemptions, minutely graded scales of rates and elabo- 
 rate systems of differentiation are the most characteristic 
 features. In the majority of the continential states the 
 tax upon each grade of income is not a certain percentage 
 of the income in that grade, but a fixed amount which is 
 practically equivalent in each grade to the amount which 
 would result from a gradually increasing percentual rate. 
 In a few cases, a uniform rate is provided which is rend-
 
 SUMMARY 
 
 ered progressive by an ingenious system of diminishing 
 abatements in the lower part of the scale and a series of 
 increasing additions to the higher grades. This method 
 has been carried to greater lengths in Sweden than in any 
 other country. 
 
 A prominent feature of the continental methods is the 
 supplementary tax which is usually levied at a low rate on 
 the total wealth of the taxpayer. The combination of 
 this tax with the income tax is often described as an "in- 
 come and property tax," although the expression is some- 
 what inaccurate and misleading. 
 
 Spain and Italy have what might be termed partial 
 income taxes, as the profits from real estate are not 
 treated as income, but are supposed to be reached by the 
 general land tax. 
 
 Rates. Perhaps the most interesting basis of com- 
 parison which can be selected is the amount of rates and 
 the degree of progression which is applied to such rates. 
 But it is precisely at this point that the greatest difficulties 
 are encountered owing to the widely divergent and often 
 complicated methods employed. It seemed very desirable 
 to obtain a sort of composite of the rates in as many 
 countries as possible, and it was found that there were 
 about forty systems of income taxation which would lend 
 themselves more or less gracefully to this purpose. The 
 countries in which these systems of income taxation are 
 in force comprise all of the most important, except Spain. 
 They represent a population of over 418,500,000, or 77 
 per cent of the whole. Ten fixed points were selected in 
 the scale of incomes of each country and the tax com- 
 puted and reduced to American currency for each point. 
 Owing to the great diversity in the amount of exemption
 
 312 
 
 INCOME TAXATION 
 
 and the influence of such exemption on the rate as ap- 
 plied to the total income, it was found necessary to take 
 into account the effect of the exemption in every case. 
 As a result of this rather laborious method it was ascer- 
 tained that the average income tax on a total income of 
 
 > 500 was $ 7.70 or 1.54 per ce 
 
 1,000 
 
 19.80 
 
 1.98 
 
 
 2,000 
 
 47.94 
 
 2.40 
 
 
 5,000 
 
 147.87 
 
 2.96 
 
 
 10,000 
 
 337,66 
 
 3.37 
 
 
 15,000 
 
 509.09 
 
 3.39 
 
 
 20,000 
 
 691.45 
 
 3.46 
 
 
 25,000 
 
 888.45 
 
 3.55 
 
 
 50,000 
 
 1,878 30 
 
 3.75 
 
 
 100,000 
 
 3,791.29 
 
 3.79 
 
 
 
 It should be explained that the percentages given 
 above are somewhat lower than they would be if the rates 
 on all incomes had been taken into consideration. In 
 many countries higher rates are levied upon income from 
 capital or investments than upon income from labor; but 
 not every country makes this distinction and it has there- 
 fore seemed best, in order to reach a common and uni- 
 form basis, to confine the calculations to the rates fixed 
 for incomes arising from personal exertion. Had the 
 higher rates which are levied on capital in some countries 
 and the super-taxes and supplemental taxes been included 
 in the computation, the average amount of tax and the 
 percentages would have been very materially increased. 
 A tabulation of the rates in twenty countries where a 
 differentiation exists between earned and unearned in- 
 comes, or, in other words, between incomes from labor 
 and incomes from capital, reveals the fact that the aver- 
 age proportion of the rates is as three to five, that is to 
 say: when a certain amount of income from labor pays 
 three dollars the same amount of income from capital
 
 SUMMARY 313 
 
 would pay five dollars. This, it will be remembered, was 
 the exact proportion adopted in Holland by Dr. Pierson 
 after much scientific investigation. 
 
 The forty countries which were considered in the 
 foregoing computation may be divided into two groups 
 as follows : 
 
 1. The "English Group" comprising England, six 
 Australian Commonwealths, New Zealand, British 
 Columbia, Cape of Good Hope, India, Leeward Islands 
 (Antiqua and Dominica), Seyschelles, St. Vincent and 
 Hawaii. 
 
 2. The "Continental Group" including Austria, Den- 
 mark, Prussia, Alsace-Lorraine, Baden, Bavaria, Bruns- 
 wick, Hesse, Mecklenburg, Saxony, Wuerttemberg, Hol- 
 land, Hungary, Italy, Luxemburg, Norway, Sweden and 
 the Swiss Cantons of Appenzell A. Rh., Baselstadt, 
 Graubunden, Solothurn, Waadt, Zurich and Zug. 
 
 By computing the average amount of tax and the per- 
 centages separately for each of these groups the follow- 
 ing results are obtained : 
 
 Am't of English Continental 
 
 Income Group Group 
 
 Tax Percentage Tax Percentage 
 
 $ 500 $ 8.84 1.76 $ 7.42 1.48 
 
 1,000 16.45 1.64 21.47 2.15 
 
 2,000 40.45 2.02 52.62 2.63 
 
 5,000 126.45 2.53 162.15 3.24 
 
 10,000 296.28 2.96 365.25 3.65 
 
 15,000 448.30 2.99 549.62 3.66 
 
 20,000 608.28 3.04 746.91 3.73 
 
 25,000 790.60 3.16 957.81 3.83 
 
 50,000 1,616.26 3.23 2,052.98 4.10 
 
 100,000 3,280.39 3.28 4,131.87 4.13 
 
 The lines of progression which would be produced by 
 connecting the percentages above shown are indicated in
 
 314 INCOME TAXATION 
 
 a diagram which will be found in Appendix C. 1 The 
 rates in the Continental Group would be somewhat lower 
 if Italy were omitted, as the Italian rate ranges from 
 eight times the average of the remaining twenty-three 
 countries, for $500, to more than double in the higher 
 portions of the scale. 
 
 Japan has not been included in either group as the 
 rates are quite excessive. The amount of tax which 
 would be levied in Japan is as follows : 
 
 Income Tax Income Tax 
 
 $ 500 $ 17.25 $ 15,000 $ 2,092 
 
 1,000 39.10 20,000 2,790 
 
 2,000 92 25,000 4,590 
 
 5,000 375 50,000 10,175 
 
 10,000 1,160 100,000 20,350 
 
 Amount of income tax collected. The amount of in- 
 come tax collected in the year 1908, was, in round figures, 
 $413,000,000. In this respect England stands at the head 
 with $165,000,000, Prussia was second with about 
 $88,000,000, Italy third with nearly $50,000,000, Spain 
 $18,000,000, Japan $13,800,000, Saxony $12,275,000, 
 Austria $12,000,000 and Holland, India and Norway, 
 each with nearly $7,000,000. These ten countries to- 
 gether, raised about $380,000,000 or about 92 per cent 
 of the whole amount. 
 
 Proportion which income tax bears to total taxes. 
 The amount raised by taxation of incomes is sometimes 
 
 1 . The fact that the rate for $1,000 in the English group is less 
 than for $500 may require some explanation. Four Australian 
 States which are included in that group have exemptions of 200 
 or $973.30. The amount which would actually be taxed therefore 
 would be only the difference between that sum and $1,000. In like 
 manner as the exemption in Hawaii is $1,500, the amounts under 
 that sum would not be taxed and an income of $2,000 would be 
 taxed on only $500. It should be stated that the English super-tax 
 and the German supplementary taxes are not considered in these 
 computations.
 
 SUMMARY 
 
 compared with total revenue; but the results obtained 
 have an uncertain value by reason of the fact that many 
 countries have large gross receipts accruing from rail- 
 roads and other public utilities while in others the only 
 sources of revenue are direct and indirect taxes. It has 
 therefore seemed that a comparison with the total amount 
 raised by direct taxation would be of more significance. 
 A tabulation of the statistics obtainable on this point in 
 37 countries discloses the fact that the income tax con- 
 tributed almost exactly fifty per cent of the total amount 
 raised by taxation. The percentages are highest in the 
 minor German States, sometimes exceeding eighty per 
 cent. 
 
 Exemptions. A comparison of the exemptions in 
 various countries cannot be made with absolute accuracy 
 owing to diversity of methods. For example, in some 
 states the laws provide that incomes below a certain sum 
 shall be exempt, while all above that sum shall be taxed 
 at their full amount. In other states the exemption ap- 
 plies to all incomes regardless of their amount. In not a 
 few cases the laws are ambiguous as to which method is 
 intended, and it becomes necessary to ascertain how the 
 law is applied in practice. In some countries also, as in 
 Denmark and Norway, the amount of exemption is vari- 
 able according to the number of dependents the taxpayer 
 has to support or the amount of his income. In such 
 cases we have taken as the amount of the exemption such 
 sum as seemed to be a fair average. 
 
 From a tabulation of fifty-six countries which have 
 exemptions it appears that the average amount deemed 
 to be necessary as a minimum of existence and therefore 
 exempt at the foot of the scale, is $iOG.30. If however
 
 3l6 INCOME TAXATION 
 
 these fifty-six countries are divided into two groups, the 
 first to consist of England, fourteen of her colonies 
 and Hawaii, and the second composed of the countries 
 and states of continental Europe, together with Japan, it 
 will be found that the first or what might be called the 
 English-speaking group has an average exemption of 
 $1,098.50 or, in round numbers, $1,100, while the aver- 
 age of the second group, comprising forty countries and 
 political subdivisions is only $153.13. 
 
 Proportion of income taxpayers. The proportion of 
 income taxpayers to population is an important item, but 
 there appear to be only twenty countries in which reliable 
 statistics upon this point are available. Fortunately these 
 comprise most of the larger countries as will be seen by 
 the fact that their combined population amounts to 420,- 
 000,000. The proportion which the income taxpayers 
 bear to total population in these countries is three and 
 one-half per cent, but if India is omitted, as it perhaps 
 should be owing to exceptional conditions which prevail 
 there, the rate for the remaining nineteen countries rises 
 to ten per cent. Among the larger states the highest pro- 
 portion is found in Saxony where 26 per cent of the 
 population pay income taxes. In Prussia the proportion 
 of income taxpayers is 16.36 per cent. Although the 
 population of Prussia is only about five-sixths of that of 
 England the number of income taxpayers in the former 
 country is five times as great as in the latter. This fact 
 is no doubt accounted for by the difference in the exemp- 
 tion England exempting nearly $800 while the amount 
 exempted in Prussia is only $214. Attention has already 
 been called to the fact that Prussia now has about the 
 same population and about the same amount of wealth as
 
 SUMMARY 317 
 
 the United States had in the later sixties. The average 
 number of persons who paid the Civil War income tax in 
 the years 1867-1870 was 267,564, or about two-thirds of 
 one per cent of the population. In Prussia the number of 
 taxpayers in 1909 was 6,107,621 or twenty-two times as 
 many. But an analysis of the Prussian statistics for 
 1909 will show that if the exemption of 900 marks, or 
 $214, had been raised to $1,000, which was the amount 
 allowed by the Civil War income tax at the period men- 
 tioned, the number of Prussian income taxpayers would 
 have been only 324,127. Of the six million income tax- 
 payers in Prussia nearly five and one-half million, or, to 
 be more exact, 89.81 per cent are assessed for annual 
 incomes of less than $714, while only three per cent have 
 incomes exceeding $1,550. In Austria 85 per cent of the 
 income taxpayers are assessed for incomes of less than 
 $812 and 97 per cent for incomes of less than $2,500; 
 but it must not be supposed that the amount of taxes paid 
 bears any fixed relation to the number of persons as- 
 sessed. As a matter of fact the three per cent of the 
 population who have incomes over $2,500 pay 26 per cent 
 of the whole tax. 
 
 It will be observed that no effort has been made in the 
 preceding pages to discuss the subject of income taxation 
 from a theoretical or scientific standpoint. This branch 
 of the subject has been treated with great fulness by 
 many distinguished authors and we should despair of 
 being able to add to the discussion anything which had
 
 318 INCOME TAXATION 
 
 not already been better said. 2 Neither has it seemed 
 advisable to attempt any lengthy discussion of the argu- 
 ments which have been advanced for and against the in- 
 come tax. Whether or not the taxation of incomes 
 should become a feature of our financial system is a 
 question upon which thoughtful men may well differ and 
 upon which it has not seemed necessary to take sides in 
 the preparation of this book. Whatever may be the 
 merits of the controversy, the fact remains that nearly 
 every civilized country has now adopted the income tax 
 and, unless we greatly misinterpret the present trend of 
 public sentiment, its general introduction in this country 
 is soon to follow. In view of this contingency it may be 
 well to allude to a few of the important questions which 
 are likely to engage public attention. 
 
 In the first place there is the question of what is the 
 true scope and purpose of an income tax. 
 
 The enthusiastic champions of such a tax are some- 
 times inclined to look upon it as a panacea for all social 
 ills, losing sight of the fact that, like every other form 
 of taxation, its chief function is the raising of revenue. 
 And even in this respect it has its limitations. Whether 
 it can ever be made to occupy anything more than a sub- 
 ordinate position in the field of taxation may well be 
 doubted. In its practical application the income tax is 
 best fitted for the modest role of a supplementary tax. 
 To put the whole burden of taxation upon incomes would 
 
 2 Professor Edwin R. A. Seligman is about to issue a book 
 which will treat of the income tax with special reference to its 
 theoretic and scientific basis. His acknowledged pre-eminence as a 
 thinker and writer upon this branch of political science makes it 
 certain that this book will constitute an important and valuable con- 
 tribution to the literature of the subject.
 
 SUMMARY 319 
 
 be more unjust than to place it wholly upon property. 
 There are features of our present system, such as the 
 tax on intangible personalty, which have proven unsatis- 
 factory and for which the income tax might offer an ac- 
 ceptable substitute. The experiences of other countries 
 would seem to demonstrate also that a tax on incomes 
 can be used to restore the equilibrium of a financial sys- 
 tem where the indirect taxes bear most heavily upon the 
 poorer classes. But it is not the proper function of an 
 income tax to correct social inequalities nor to take money 
 from the rich for the benefit of those less fortunate. It 
 is primarily and preeminently a fiscal measure which 
 finds its justification in the extent to \vhich it will adjust 
 itself with reasonable fairness to the abilities of those 
 who are called upon to pay it. 
 
 In the second place, there is the great question of 
 whether the taxation of incomes should be undertaken by 
 the Federal Government, or by the states, or by both. The 
 principal arguments in favor of a Federal income tax 
 may be briefly stated as follows : 
 
 1. The general government is now compelled to rely 
 almost wholly upon customs and excises 3 for its revenues. 
 In case of emergency some other source of income should 
 be at hand which can be utilized without disturbing prices 
 or seriously interfering with business. The income tax 
 possesses these requisites. 
 
 3 . The word "excises" is here used in the sense of a tax levied 
 on certain commodities of domestic production : "Taxes on com- 
 modities are either on production within the country, or on importa- 
 tion into it, or on conveyance or sale within it, and are classed re- 
 spectively as excises, customs or tolls or transit duties." John Stuart 
 Mill, Political Economy, Vol. 5, Ch. 3, p. 562.
 
 32O INCOME TAXATION 
 
 2. The Federal Government would have a distinct 
 advantage in that the tax being uniform throughout the 
 United States, there would be no escape from it by means 
 of moving from one state to another. 
 
 3. Under a general income tax the danger of double 
 taxation could be largely avoided. Nearly all business 
 of importance now transcends state lines and if some or 
 all of the states should levy income taxes, which were 
 really effective, a large amount of double taxation would 
 be inevitable. 4 
 
 4. It is quite generally conceded that Federal ad- 
 ministration of the income tax is likely to prove much 
 more thorough and efficient than any system involving 
 great diversity of methods and constantly subject to the 
 caprices of local authorities. 
 
 In opposition to these considerations it is urged that a 
 Federal income tax is an unwarranted interference with 
 the rights of the states, and a step towards centralization 
 in so far as it appropriates to the general government an 
 important source of revenue to which the several com- 
 monwealths are primarily entitled. 
 
 Similar arguments, pro and con, have been advanced 
 in respect to the corporation tax and the inheritance tax. 
 It has been proposed as a means of reconciling these con- 
 flicting views that the Federal Government should collect 
 such taxes, but afterward apportion the major part of the 
 
 4 . If state taxation of incomes were general there would no 
 doubt be the greatest variety of methods and rates and we should 
 have ? repetition on a large scale of the retaliatory legislation which 
 is such an unfortunate feature of the taxation of insurance com- 
 panies.
 
 SUMMARY 
 
 321 
 
 amount collected among the respective states. 5 So far as 
 income taxes are concerned it is not impossible that both 
 jurisdictions might levy such taxes at the same time pro- 
 viding that the rates were sufficiently moderate; and we 
 venture the suggestion that in case a Federal income tax 
 is levied the states could avail themselves of the assess- 
 ments made by the general government as a basis for 
 local income taxation. It will be remembered that in 
 Prussia municipal income taxes are levied upon the basis 
 of assessments made by the Prussian Government and 
 the assessment of the tax is thus removed from local in- 
 fluences. If the United States Government should levy 
 a general proportional income tax of, say, one per cent 
 and make the exemption very low, the amount raised 
 would no doubt be adequate in times of peace 6 and the 
 state could still add one, or even two per cent without 
 making the tax excessive. 
 
 A third question which is likely to receive much at- 
 tention is that of the comparative merits of progressive 
 and proportional taxation. Upon the one side are those 
 
 5 . "Thus we reach the conclusion that, of the three great taxes 
 about which the controversy has now become acute, the income tax 
 ought to be levied by the Federal Government and its proceeds util- 
 ized not only to diminish the burden of the National indirect taxes, 
 but more especially in order to facilitate the reform of the state 
 general property tax : and we reach the further conclusion that the 
 corporation tax and the inheritance tax should be levied as National 
 taxes, by the Federal Government, but under a clear understanding 
 with the separate states that the proceeds should be distributed in 
 whole or in greater part to them." Seligman, The Relations of 
 State and Federal Finance, North American Review, Vol. 190 (Nov., 
 1909), pp. 615-627. 
 
 6 . In 1866, corporations paid more than one-eighth of the whole 
 income tax. In 1910 a one per cent tax on corporations yielded 
 twenty-seven million dollars. If the proportion between individual 
 and corporate wealth were substantially the same now as then a Fed- 
 eral income tax of one per cent might be expected to yield 
 $200,000,000. See note to Appendix F.
 
 322 INCOME TAXATION 
 
 who contend that some degree of progression is neces- 
 sary especially in a Federal tax to offset the inequali- 
 ties of indirect taxation and to bring about approximate 
 "equality of sacrifice." 7 In opposition to these conten- 
 tions the dangers of class legislation are pointed out, and 
 it is argued that the great advantages arising from "col- 
 lection at the source" can only be secured by a propor- 
 tional tax. 8 It has been stated that two-thirds of the 
 English income tax is collected at the source, and thus 
 to a very large extent the inquisitorial proceedings which 
 tend to render income taxation unpopular, are avoided. 
 But it is not probable that any such results could be ob- 
 tained in the United States where the ramifications of 
 business are so much more extensive and complicated. 
 
 The proper amount of exemption at the foot of the 
 scale is another problem upon which there is likely to be 
 much divergence of opinion. Some of the income taxes 
 recently proposed have placed the exemption as high as 
 five and even ten thousand dollars, while not a few 
 writers and speakers have argued against the allowance 
 of any exemption. 
 
 7 . John Stuart Mill defines "equality of sacrifice" as such an 
 apportionment of the expenses of government as will cause each 
 person neither more nor less inconvenience from his share of the 
 payment than every other person experiences from his, but he in- 
 timates that such a standard of perfection is not obtainable in prac- 
 tice. 
 
 8 . It is evident that under a progressive tax the person who 
 was required to deduct the income tax from salaries or dividends 
 and to pay it over to the Government, could not know what rate 
 to apply and would therefore use the highest rate. The result 
 would be that large amounts in excess of the proper tax would be 
 collected and a great number of reclamations would have to be made 
 by the taxpayers.
 
 SUMMARY 323 
 
 The best authorities are in substantial agreement that 
 the exemption should equal, but not exceed a reasonable 
 "minimum of subsistence;" but to determine what sum 
 would answer to that term is no easy task. 
 
 In the matter of abatements and differentiations it is 
 evident that income taxation permits of almost infinite 
 development, and it will be necessary to establish definite 
 principles upon which laws for these purposes shall be 
 based. If abatements are to be allowed in favor of those 
 who have children or dependents to support, the question 
 arises whether certain drawbacks such as old age, physi- 
 cal infirmities, etc., should not be taken into considera- 
 tion. If there is differentiation in favor of earned income 
 a similar discrimination might be made in favor of in- 
 come from property already taxed, or income which is 
 only temporary, or precarious, or non-inheritable. The 
 field for inquiry, discussion and investigation which is 
 thus opened up is almost limitless, but up to this time it 
 seems to have been largely overlooked and ignored. 
 
 Lastly, there is the administrative problem which is 
 perhaps after all the most difficult. The importance of 
 this branch of the subject is evidently not appreciated in 
 the United States and as a result many of our state in- 
 come tax laws have been lamentably weak and inefficient. 
 
 It is a common remark that income tax laws are all 
 right, but that they do not work in practice. Certainly 
 the experiences of those states which have passed such 
 laws are not encouraging, but is it not possible that the 
 fault lies with the crude and imperfect administrative 
 methods which have thus far been employed? The as- 
 sessment of the annual net income of each taxpayer is a
 
 INCOME TAXATION 
 
 peculiarly difficult task, because it involves the ascertain- 
 ment of a sum, the amount of which is usually carefully 
 concealed or possibly unknown even to the taxpayer him- 
 self. The argument most frequently advanced against 
 income taxation is that it is inquisitorial and to a limited 
 extent this is true. But the argument is far from con- 
 clusive. There is more of the inquisitorial feature in the 
 administration of our tariff laws where examination of 
 the person is often resorted to, and in the internal revenue 
 department where every step in the manufacture of spirits 
 and tobacco is carefully watched. The laws for the assess- 
 ment of personal property, if rigidly enforced, would be 
 quite as inquisitorial as any income tax, and many per- 
 sons would rather give a statement of their annual net 
 income than to furnish the complete exhibit of their assets 
 and liabilities now required in many states. Moreover, 
 if the principle of collection at source is applied to its full 
 extent the resort to inquisitorial proceedings is largely 
 obviated. The extent to which an income tax will be 
 open to the objection that it is inquisitorial will also de- 
 pend upon whether income is reckoned in a lump sum or 
 divided into schedules ; whether the amount of income is 
 determined by the declaration of the taxpayer, by "ex- 
 terior signs" or by official estimation; whether the in- 
 come of the current year, or the preceding year, or a term 
 of years shall form the basis of assessment; whether in- 
 come tax returns shall be made public or not ; and whether 
 the assessments shall be in the hands of local, state or 
 Federal officials. 
 
 From what has been said above it is evident that many 
 difficult problems will have to be solved before an income 
 tax law can be drawn which will be approximately fair
 
 SUMMARY 325 
 
 and just. The subject must be viewed from the stand- 
 point of the political economist, the statesman, the man 
 of affairs, the financier, the social reformer, the capitalist 
 and the laborer. Nor will it suffice to formulate proper 
 laws unless the general public can be educated to a due 
 appreciation of the necessity and propriety of such laws. 
 The people are the ultimate arbiters as to any measure 
 which so vitally concerns their social and economic wel- 
 fare and upon their collective wisdom and intelligence 
 the future success or failure of income taxation will 
 largely depend.
 
 REMARKS 
 UPON APPENDIX A. 
 
 The lines shown upon the opposite page are simply de- 
 signed to illustrate some of the definitions given in the first 
 chapter. There is no country which has adopted rates cor- 
 responding to these lines. The red line represents a tax 
 levied as follows : 
 
 Income Tax Income Tax 
 
 $ i.oo to $10,000 i% $50,000 to $ 60,000 6% 
 
 10,000 " 20,000 2 " 60,000 " 70,000 7 " 
 
 20,000 " 30,000 3" 70,000 " 80,000 8" 
 
 30,000 " 40,000 4" 80,000 " 90,000 9" 
 
 40,000 " 50,000 5 " 90,000 " 100,000 10 " 
 
 It is a common and almost universal feature of pro- 
 gressive taxation that the grades are smaller and the rates 
 increase more rapidly in the lower portions of the scale than 
 in the higher. The "proportional progression" could be ob- 
 tained by levying a tax of one cent upon the first dollar of 
 income and adding one cent for each additional dollar. A 
 proportional tax of one per cent would be represented by the 
 red line, which starts at one per cent produced as a straight 
 horizontal line across the page.
 
 APPENDIX A. 
 
 INCOME 
 $100.000 
 
 J 90.000 
 
 $ 80.000 
 
 J 70.000 
 
 $ 60.000 
 
 t- 
 
 \ o 
 
 $ 50.000 
 
 > o 
 
 o 
 
 \* 
 
 $ 40.000 
 
 $ 30.000 
 
 $ 20.000 
 
 $ 10.000 
 
 # 4? 
 
 a> <x>
 
 r '
 
 REMARKS 
 UPON APPENDIX B. 
 
 It will be noticed that the red line is not a curve, but a 
 succession of straight lines. This is due to the fact that the 
 amount of tax for only ten points in the scale of rates for 
 each country has been ascertained, and lines drawn which 
 connected those points. If the average rate of tax had been 
 computed for each one hundred dollars, up to one hundred 
 thousand, the line produced by connecting the points thus 
 ascertained would have been a more perfect curve. The 
 irregularities in the curve, as for example the depression at 
 $15,000, can be traced to the disturbing influence of the 
 proportional taxes accompanied by high exemptions.
 
 APPENDIX B. 
 
 
 INCOME 
 $100.000 
 
 $ 95.000 
 
 $ 90.000 
 
 $ 80.000 
 
 $ 75000 
 
 $ 65 000 
 
 $ 55.000 
 
 $ 50.000 
 
 $ 45.000 
 
 $ 40.000 
 
 $ 35.000 
 
 $ 30.000 
 
 S 25000 
 
 $ 15.000 
 
 $ 10.000 
 
 $ 5.000
 
 REMARKS 
 UPON APPENDIX C. 
 
 The line of the Civil War Income Tax has been added 
 for the purpose of comparison with the average of foreign 
 countries. The table obtained by combining the five Civil 
 War income taxes for the same ten amounts used in the 
 computations for foreign countries would be as follows : 
 
 Income Amount of Tax Percentage 
 
 $ 500 o o 
 
 1,000 $ 21.33 $ 2 -!3 
 
 2,000 54.80 2.74 
 
 5,000 i95-8o 3.91 
 
 10,000 53 2 - 80 5-33 
 
 15,000 867.40 5.78 
 
 20,000 1,172.40 5.86 
 
 25,000 i,47740 5-9 1 
 
 50,000 3,002.40 6. 
 
 100,000 6,652.40 6.05 
 
 It must be borne in mind that there are several countries in the 
 English and Continental groups which levy somewhat higher rates 
 upon income from capital than upon income from labor. If these 
 higher rates had been included in the computations' the two lower 
 lines would be raised slightly and the comparison with the Civil 
 War Income Tax, where no attempt was made to segregate the 
 earned income, would be more accurate.
 
 APPENDIX C. 
 
 INCOME : 
 $100.000 
 
 $ 90.000 
 
 $ 80.000 
 
 $ 70.000 
 
 $ 60.000 
 
 $ 50.000 
 
 $ 40.000 
 
 $ 30.000 
 
 $ 20.000 
 
 $ 10.000
 
 APPENDIX D. 
 
 TABLE OF RATES IN AUSTRIA. 
 
 No. of 
 
 Income (Crowns)l 
 
 Tax 
 
 No. of 
 
 Income (Crowns) 
 
 Tax 
 
 Grade 
 
 from 
 
 to 
 
 (Crowns) 
 
 Grade 
 
 from 
 
 to 
 
 (Crowns) 
 
 1 
 
 1,200 
 
 1,250 
 
 7.20 
 
 34 
 
 12,000 
 
 13,000 
 
 326 
 
 2 
 
 1,250 
 
 1,300 
 
 8 
 
 35 
 
 13,000 
 
 14,000 
 
 362 
 
 3 
 
 1,300 
 
 1,350 
 
 8.80 
 
 36 
 
 14,000 
 
 15,000 
 
 398 
 
 4 
 
 1,350 
 
 1,400 
 
 9.60 
 
 37 
 
 15,000 
 
 16,000 
 
 434 
 
 5 
 
 1,400 
 
 1,500 
 
 10.80 
 
 38 
 
 16,000 
 
 17,000 
 
 470 
 
 6 
 
 1,500 
 
 1,600 
 
 12 
 
 39 
 
 17,000 
 
 18,000 
 
 506 
 
 7 
 
 1,600 
 
 1,700 
 
 13.60 
 
 40 
 
 18,000 
 
 19,000 
 
 544 
 
 8 
 
 1,700 
 
 1,800 
 
 15.20 
 
 41 
 
 19,000 
 
 20,000 
 
 582 
 
 9 
 
 1,800 
 
 1,900 
 
 16.80 
 
 42 
 
 20,000 
 
 22,000 
 
 638 
 
 10 
 
 1,900 
 
 2,000 
 
 18.40 
 
 43 
 
 22,000 
 
 24,000 
 
 714 
 
 11 
 
 2,000 
 
 2,200 
 
 20 
 
 44 
 
 24,000 
 
 26,000 
 
 790 
 
 12 
 
 2,200 
 
 2,400 
 
 24 
 
 45 
 
 26,000 
 
 28,000 
 
 866 
 
 13 
 
 2,400 
 
 2,600 
 
 28 
 
 46 
 
 28,000 
 
 30,000 
 
 942 
 
 14 
 
 2,600 
 
 2,800 
 
 32 
 
 47 
 
 30,000 
 
 32,000 
 
 1,020 
 
 15 
 
 2,800 
 
 3,000 
 
 36 
 
 48 
 
 32,000 
 
 34,000 
 
 1,100 
 
 16 
 
 3,000 
 
 3,200 
 
 40 
 
 49 
 
 34,000 
 
 36,000 
 
 1,180 
 
 17 
 
 3,200 
 
 3,400 
 
 44 
 
 50 
 
 36,000 
 
 38,000 
 
 1,260 
 
 18 
 
 3,400 
 
 3,600 
 
 48 
 
 51 
 
 38,000 
 
 40,000 
 
 1,340 
 
 19 
 
 3,600 
 
 3,800 
 
 54 
 
 52 
 
 40,000 
 
 44,000 
 
 1,460 
 
 20 
 
 3,800 
 
 4,000 
 
 60 
 
 53 
 
 44,000 
 
 48,000 
 
 1,600 
 
 21 
 
 4,000 
 
 4,400 
 
 68 
 
 54 
 
 48,000 
 
 52,000 
 
 1,760 
 
 22 
 
 4,400 
 
 4,800 
 
 78 
 
 55 
 
 52,000 
 
 56,000 
 
 1,920 
 
 23 
 
 4,800 
 
 5,200 
 
 88 
 
 56 
 
 56,000 
 
 60,000 
 
 2,080 
 
 24 
 
 5,200 
 
 5,600 
 
 98 
 
 57 
 
 60,000 
 
 64,000 
 
 2,250 
 
 25 
 
 5,600 
 
 6,000 
 
 110 
 
 58 
 
 64,000 
 
 68,000 
 
 2,424 
 
 26 
 
 6,000 
 
 6,600 
 
 124 
 
 59 
 
 68,000 
 
 72,000 
 
 2,600 
 
 27 
 
 6,600 
 
 7,200 
 
 142 
 
 60 
 
 72,000 
 
 76,000 
 
 2,780 
 
 28 
 
 7,200 
 
 7,800 
 
 160 
 
 61 
 
 76,000 
 
 80,000 
 
 2,964 
 
 29 
 
 7,800 
 
 8,400 
 
 180 
 
 62 
 
 80,000 
 
 84,000 
 
 3,148 
 
 30 
 
 8,400 
 
 9,200 
 
 202 
 
 63 
 
 84,000 
 
 88,000 
 
 3,336 
 
 31 
 
 9,200 
 
 10,000 
 
 228 
 
 64 
 
 88,000 
 
 92,000 
 
 3,528 
 
 32 
 
 10,000 
 
 11,000 
 
 258 
 
 65 
 
 92,000 
 
 96,000 
 
 3.720 2 
 
 33 
 
 11,000 
 
 12,000 
 
 292 
 
 
 
 
 
 1 . As the Austrian Crown is equivalent to 20.3 cents the ap- 
 proximate equivalent of any of the above amounts in American 
 money can be easily ascertained by dividing the amount by five. 
 
 2 . For amount of tax on larger amounts of income see Chapter 
 III Ante.
 
 APPENDIX E. 
 
 The following table, compiled from the Auditor's re- 
 ports for the respective years, shows the amount of the 
 tax upon incomes in North Carolina compared with the 
 total state tax. 
 
 Year Amount of Total State 
 
 Income Tax Tax 
 
 1849 $28,277.19 $ 141,609.01 
 
 1850 28,802.00 151,713.12 
 1867 3,838.97 226,765.00 
 1877 1,683.33 493,542.49 
 
 1890 2,112.34 601,249.91 
 
 1891 1,471.33 677,826.50 
 
 1892 931.43 661,409.03 
 
 1893 2,695.15 586,905.35 
 
 1894 2,822.02 571,310.06 
 
 1895 2,730.57 589,385.32 
 
 1896 3,460.02 604,542.01 
 
 1897 4,594.15 619,490.52 
 
 1898 4,251.44 627,081.42 
 
 1899 4,398.73 723,307.36 
 
 1901 19,030.79 908,035.80 
 
 1902 19,022.48 945,054.99 
 
 1903 23,509.77 1,120,644.88 
 
 1904 24,589.04 1,104,785.95 
 
 1905 27,844.13 1,130,661.20 
 
 1906 31,292.82 1,170,834.66 
 
 1907 36,829.44 1,366,587.80 
 
 1908 36,383.75 1,628,272.26
 
 APPENDIX F. 
 
 STATEMENT OF 
 
 APPROXIMATE AMOUNTS OF TAX AND PENALTIES ON 
 
 CORPORATION ASSESSMENT LISTS FOR MONTHS 
 
 OF JANUARY, FEBRUARY AND MARCH, 1910. 
 
 Returns 
 
 No. of Tax Penalties Total 
 
 Alabama 3,185 $ 144,666.45 $2,214.28 $ 146,880.73 
 
 Arkansas 1,814 58,020.74 389.69 58,410.43 
 
 California 15,812 1,069,985.47 1,957.90 1,071,943.37 
 
 Colorado 6,727 251,138.30 672.30 251,810.39 
 
 Connecticut 3,486 641,081.45 641,081.45 
 
 Florida 858 61,332.13 1,125.78 62,457.91 
 
 Georgia 2,376 154,276.07 154,276.07 
 
 Hawaii 417 124,143.58 124,143.58 
 
 Illinois 14,759 2,482,355.45 13,065.29 2,495,420.74 
 
 Indiana 5,578 402,175.96 1,485.92 403,664.88 
 
 Iowa 5,081 186,086.75 431.30 186,518.05 
 
 Kansas 4,783 411,327.08 996.69 412,323.77 
 
 Kentucky 3,533 246,386.16 573.42 246,957.58 
 
 Louisiana 2,199 162,921.28 1,651.89 164,573.17 
 
 Maryland 3,902 520,007.93 37.70 520,045.63 
 
 Massachusetts 8,456 1,393,329.82 35.17 1,393,364.99 
 
 Michigan 5,728 773,854.77 6,034.92 779,889.69 
 
 Minnesota 3,339 1,122,480.38 6,277.52 1,128,757.90 
 
 Missouri 10,179 882,596.57 5,245.88 887,842.45 
 
 Montana 11,372 204,261.10 4,981.47 209,242.57 
 
 Nebraska 2,422 119,652.96 1,057.75 120,710.71 
 
 New Hampshire... 3,835 345,217.71 523.62 345,741.33 
 
 New Jersey 7,290 1,447,595.68 12,649.89 1,460,245.57 
 
 New 1 Mexico 1,050 73,717.55 3,924.80 77,642.35 
 
 New York 24,710 5,283,261.26 11,675.34 5,294,936.60 
 
 N. and S. Dakota... 3,034 54,799.08 925.99 55,725.07 
 
 North Carolina 2,939 67,131.17 652.00 67,783.17 
 
 Ohio 12,872 1,668,286.35 1,137.26 1,669,423.61 
 
 Oregon 3,067 149,734.90 514.60 150,249.50 
 
 Pennsylvania 14,840 3,275,200.33 1,176.58 3,276,376.91 
 
 S. Carolina 2,366 82,334.60 405.42 82,740.02 
 
 Tennessee 2,843 154,034.52 17.16 154,051.68 
 
 Texas 5,407 393,801.96 3,375.81 397,177.77 
 
 Virginia 2,700 345,041.56 1,497.11 346,538.67 
 
 Washington 6,763 241,190.19 7,876.46 249,066.65 
 
 W. Virginia 3,142 133,472.41 275.66 133,748.07 
 
 Wisconsin 7,128 582,145.51 184.22 582,329.73 
 
 Total 219,992 $25,709,045.18 $95,046.58 $25,804,091.76 
 
 January 11,241 158,370.52 
 
 231,243 
 
 $25,962,462.28 
 
 Note : It appears by a statement made public November 27, 
 1910, that the total number of corporations was 262,490; the total 
 net income $3,125,470,000; total capital stock, $52,371,626,752 and 
 bonded and other indebtedness, $31,133,052,696.
 
 APPENDIX G. 
 
 VALUES OF FOREIGN COINS EXPRESSED IN 
 AMERICAN CURRENCY. 
 
 Country 
 
 Coin 
 
 Dollars | Cents 
 
 Austria and Hungary. . Heller (100 Heller = 1 Krone). . 00.2 
 
 Austria and Hungary. . Krone (Crown), (pi. Kroner)... 20.3 
 
 Norway Krone (pi. Kroner) 26.8 
 
 England Pound Sterling 4 86.65 
 
 England Shilling (12 pence) 24.3 
 
 Finland Markka (pi. Markkaa) 19.3 
 
 France Franc 19.3 
 
 France Centime (100 Centimes = 1 Franc) 00.2 
 
 France Livre (obsolete) = 1 Franc. 
 
 France Sol (obs.) = 1 Sou = 5 Centimes 
 
 Germany Mark 23.8 
 
 Germany Pfennig (100 Pfennige = 1 Mark) 00.25 
 
 Greece Drachma (pi. Drachmas) 19.3 
 
 Greece Lepta ( 100 Leptas = 1 Drachma) 00.2 
 
 Holland Florin 40.2 
 
 Holland Gulden or Guilder (modern) 40.2 
 
 India Rupee 32.441-3 
 
 Italy Lira (pi. lire) 19.3 
 
 Japan Yen 49.8 
 
 Panama Balboa (Gold) 1 
 
 Philippines Pesa 50. 
 
 Russia Ruble 51.5 
 
 Spain Peseta 19.3 
 
 Sweden Krona (pi Kroner) 26.8
 
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 INDEX 
 
 Aargau, 195, 201, 313. 
 
 Abatements, defined, 13; in 
 Western Australia, 34; in Au- 
 stria, 39 ; in England, 04 ; in 
 France, 81; in Prussia, 96; in 
 Bavaria, 112; in Wuerttem- 
 berg, 124; in Italy, 152; in 
 Sweden, 188; in Zurich, 195; 
 in general, 323. 
 
 Absentee tax, in Western Au- 
 stralia, 33 ; in Hungary, 147. 
 
 Addington's property and in- 
 come tax, 60. 
 
 Administration (of income tax), 
 in Victoria, 31; in Austria, 39; 
 in Denmark, 55 ; in England, 
 68 ; in France, 84 ; in Prussia, 
 97 ; in Baden, 110 ; in Holland, 
 141; in Hungary, 147; in Italy, 
 153 ; in Japan, 159 ; in Norway, 
 169; in Sweden, 192; in gen- 
 eral, 323. 
 
 Alabama, 210, 253, 294, 296. 
 
 Alberta, 50. 
 
 Aldrich, Senator, 280, 305. 
 
 Alsace Lorraine, 107, 129, 313. 
 
 American Colonies, 203. 
 
 Amsterdam, 143. 
 
 Anhalt, 108, 129. 
 
 Antiqua, 162, 313. 
 
 Appenzell A. Rh. 201, 313. 
 
 Australia, 18, 310. 
 
 Australasia, 18. 
 
 Austria, 35-44; 313, 314, 317; 
 rates in, Appendix D. 
 
 Baden, 109, 129, 313. 
 Bailey, Senator, 279. 
 Bailey - Cummins Amendment, 
 
 279 
 
 Basel, 197, 199, 201, 313. 
 Baselland, 201. 
 Baselstadt, See Basel, 197. 
 
 Bavaria, 111, 129, 309, 313. 
 
 Beach, E. Hicks 186. 
 
 Belgium, 44. 
 
 Berne, 201. 
 
 Bibliography. 336. 
 
 Bonds, See United States. 
 
 Bowers, Solicitor General, 283. 
 
 Bremen, 127, 129. 
 
 Brewer, Justice David J., 299. 
 
 British Columbia, 47, 313. 
 
 Brunswick, 113, 129, 135. 
 
 Byrd, Richard E., 293 n., 306. 
 
 Caillaux, M., 76, 77. 
 
 Canada, definition of income in, 
 6 ; income taxes in, 43-50. 
 
 Cape of Good Hope. 50, 313. 
 
 Capitation tax, 180, 183. 
 
 Carlyle, Secretary, 252 n. 
 
 Chase, Salmon P., 238. 
 
 Chemnitz, 120 n. 
 
 Choate, Joseph H., 292. 
 
 Civil War Income Tax., 237-256 ; 
 history, 247; rates, 247-248; 
 what reckoned as income, 248- 
 249; exemptions and deduc- 
 tions, 249-250; administration, 
 251 ; financial results, 252-253 ; 
 sources of incomes, 254 ; per- 
 sons assessed, 254-255; results 
 geographically, 257 ; income 
 taxpayers, 317. 
 
 Clemenceau, Minister, 7G. 
 
 Cleveland, President, 257. 
 
 Collection at source, in Queens- 
 land, 23; in Victoria, 31; in 
 Austria, 41 ; in England, 65, 69, 
 74 ; in France, 85 ; in India, 
 149; in Italy, 151, 153, 155; in 
 England, 322. 
 
 "Collective liability" plan, 177.
 
 344 
 
 INDEX 
 
 Collection of income tax, cost of, 
 in South Australia, 25 ; in Vic- 
 toria, 32; in Denmark, 56; in 
 Hawaii, 134; in India, 150. 
 
 Communal income taxes, 45, 56, 
 142, 171. 
 
 Confederacy, Southern, income 
 tax in, 269-272. 
 
 Confederate States, 233. 
 
 Connecticut, 207, 306. 
 
 Constitutional Amendments, 294 n 
 
 ''Continental Group," 313. 
 
 Contribution personelle Mobilier, 
 75 n. 
 
 Cooley, Thomas M., 7-8. 
 
 Copenhagen, 54-56. 
 
 Corporation Tax Law, 273-286 ; 
 in Hawaii, 132; in Pennsyl- 
 vania, 229; history, 275-282; in 
 Supreme Court, 282-285; yield 
 of, 286, 319 n.; appendix F. 
 
 County income tax, Hawaii, 133. 
 
 Cummins, Senator, 279. 
 
 Declaration, of income, 98, 110, 
 169. 
 
 Definition, of income, 1; of divi- 
 dends, 5 ; of profits, 5 n. ; of 
 tax, 6 ; of income tax, 8 ; of 
 proportional income taxes, 9 ; 
 of graduated, 10; progressive, 
 10; regressive, 11; degressive, 
 11; of income in Austria, 37; 
 of "income" in Civil War in- 
 come tax, 249; of "equality of 
 sacrifice," 322 n. ; of excise, 
 324 n. 
 
 Degressive income tax, defined, 
 11. 
 
 Delaware, 212, 300 n. 306. 
 
 Democratic Convention of 1908, 
 277, 288. 
 
 Denmark, 53-57; 309, 310, 313, 
 315. 
 
 Dependents, deductions for, in 
 Western Australia, 34; in Au- 
 stria, 39; in Denmark, 54; in 
 England, 65 ; in Prussia, 96 ; in 
 Saxony, 119; in Wuerttem- 
 berg, 126 ; in Norway, 165, 167 ; 
 in Baselstadt, 198 ; in the U. S. 
 323. 
 
 Differentiation, defined, 15 ; in 
 Queensland, 21; in England, 
 67; in Spain, 186, 187; in 
 Switzerland, 197; in North 
 Carolina, 223; in Virginia, 
 
 232; in Continental countries, 
 310 ; in general, 323. 
 
 Direct taxes, defined, 17; of 1861, 
 244; in the Southern Confed- 
 eracy. 271; in the Sixteenth 
 Amendment, 289. 
 
 Dividends, defined, 5 n. 
 
 Dominica, 162, 313. 
 
 Doniawerstal, 143. 
 
 Doolittle, Senator James R., 293. 
 
 Earned and unearned incomes, 
 defined, 15 ; in New South 
 Wales, 19; in Queensland, 21; 
 in South Australia, 24; in Tas- 
 mania, 26 ; in Victoria, 30 ; in 
 England, 67 ; in France, 80 ; .in 
 Bavaria, 111-113; in Wuert- 
 temberg, 126 ; in Japan, 160 ; in 
 Norway, 169; in Sweden, 192; 
 in Switzerland, 194, 195; in 
 Virginia, 232; in various coun- 
 tries, 312. 
 
 Edmonton, 50. 
 
 Egypt, 131. 
 
 Ely, Richard T., 6, 217. 
 
 England, 58-74; 
 income tax of 1806, 14. 
 super-tax in 16 ; present in- 
 come tax in, 58 ; 309, 310, 313, 
 314, 316. 
 
 "English Group," 313, 316, Ap- 
 pendix C. 
 
 Equality of Sacrifice, defined, 
 322 n. 
 
 Ergaenzungssteuer, 16, 78, 113, 
 114, 115, 119, 120, 123, 124. 
 
 Exemptions, (see the various 
 countries) defined, 12; aver- 
 age, 317; in general, 322. 
 
 "Exterior signs," determination 
 of income by, in Tasmania, 27 ; 
 in Austria, 41 ; in England, 69 ; 
 in general, 324. 
 
 Faculty taxes, 9, 203, 204, 207, 
 208, 209. 
 
 Federal Income taxes, (see 
 United States) 237; as com- 
 pared with state, 321. 
 
 Federal Income tax of 1894, 256- 
 269; history, 256-259; defects 
 in, 260-262 ; Supreme Court de- 
 cisions as to, 262-269; in gen- 
 eral, 309. 
 
 Fetter, F. A., 4. 
 
 Finland, 178.
 
 INDEX 
 
 345 
 
 Fisher, Irving, definition of in- 
 come by, 4. 
 
 Flint, Senator, 281. 
 
 Florentine Republic, 150. 
 
 Florida, 212. 
 
 Foreign coins, American equiva- 
 lents, Appendix G. 
 
 Fourteenth Amendment, 295 n. 
 
 Fox, Austen S., 292. 
 
 France, 75, 85. 
 
 Freiburg, 201. 
 
 "From whatever source derived," 
 290. 
 
 Fuller, Chief Justice, 285. 
 
 Georgia, 212, 294, 295 n., 296. 
 
 Germany, 86. 
 
 Gladstone, 61. 
 
 Graduated income taxes, defined, 
 10. 
 
 Graduated land tax, in Okla- 
 homa, 227. 
 
 Graubunden, 201, 313. 
 
 Greece, 130. 
 
 Gross incomes, 2, 4, 226, 227, 230. 
 
 "Gross Receipts," conception of 
 income, 5. 
 
 Guthrie, William D., 292. 
 
 Hamburg, 128, 129. 
 
 Hawaii, 132-135; 310, 313, 314 n. 
 
 Hesse, 114, 129, 313. 
 
 Holland, 135-145 ; 310, 313, 314. 
 
 Hughes, Governor, 290, 292. 
 
 Hungary, 145-150; 310, 315. 
 
 Hylton case, 237 n. 
 
 Illinois, 294, 296. 
 
 Impot complementaire, 16, 78, 83, 
 166. 
 
 Income, definition of, 1. 
 what constitutes in Prussia, 90. 
 what reckoned as in U. S. 
 (1862), 248; defined, 249. 
 
 Income Taxation, recent growth 
 of, 309. 
 
 Income taxes, definition of, 8. 
 function of, 319. 
 
 Income taxpayers, average pro- 
 portion, 316. 
 
 Increment tax, 102. 
 
 India, 147, 313, 314, 316. 
 
 Inheritance taxes, in New Zea- 
 land, 20 n; in Victoria, 30. 
 
 Investments tax, 109. 
 
 Italy, 150-155, 186, 310, 311, 313, 
 314. 
 
 Ixelles, 46. 
 
 Japan, 156-161, 310, 313, 314. 
 Java, 145. 
 
 Juridical persons, 121, 156, 158, 
 160. 
 
 Kapitalrenlenstetter, 109, 112, 122. 
 Kapitalsteucr, 108, 126. 
 Kentucky, 214, 294, 297-300. 
 Kinsman, Delos A., 204, 212, 214, 
 
 229, 235. 
 Klassensteuer, 35, 86. 
 
 Lane, Jonathan A., 218 n. 
 Leeward Islands, 161, 313. 
 Limited liability companies, tax- 
 ation of, 95, 121. 
 Lippe-Detmold, 115, 129. 
 Louisiana, 215, 294, 295, 300, 306. 
 Lubeck, 128, 129. 
 Lucerne, 201. 
 Luxemburg, 163, 313. 
 
 Maine, 306. 
 
 Maryland, 216, 294. 
 
 Massachusetts, 205, 217, 294, 295, 
 301. 
 
 McKilligan, John B., 48. 
 
 Mecklenburg-Schwerin, 115, 129, 
 313. 
 
 Mecklenburg-Strelitz, 115, 129, 
 313. 
 
 Milburn, John G., 292. 
 
 Mill, John Stuart, 322 n. 
 
 Minor German States, 107-129; 
 315. 
 
 Mississippi, 294, 302. 
 
 Missouri, 222. 
 
 Morawetz, Victor, 292. 
 
 Municipal income taxes, in Prus- 
 sia, 99, 321 ; in Basel, 199. 
 
 Netherlands, 135. 
 
 Neuchatel, 201. 
 
 New Hampshire, 208, 306. 
 
 New Jersey, 295 n., 306. 
 
 New South Wales, 19. 
 
 New York, 294, 295, 303. 
 
 New Zealand, 19-20, 310, 313. 
 
 Noel, E. F., Governor, 302. 
 
 Non-inquisitorial ability tax, 26. 
 
 North Carolina, 222, 232, 295 n. ; 
 
 Financial results, App. E. 
 Norway, 164-172, 310, 313, 314, 
 
 315.
 
 346 
 
 INDEX 
 
 Ohio, 295 n., 306. 
 Oklahoma, 225, 294. 
 Oldenburg, 116, 129. 
 Ontario, 48. 
 
 Panama, 172. 
 
 Pareto's law, 74. 
 
 Patentes, 79, 177. 
 
 Peel, Sir Robert, 61. 
 
 Pelletan, M. Camilla, 76. 
 
 Pennsylvania, 228, 233, 306. 
 
 Petty's property and income tax, 
 60. 
 
 Philippines, 174. 
 
 Pierson, Dr. N. G., 135. 
 
 Pitt, William, 60. 
 
 Poll taxes of England, in 1379, 8. 
 
 Pollock case, 264, 268, 276 n., 278, 
 286, 288. 
 
 Population of income taxing 
 countries, 309. 
 
 Porto Rico, 176 n. 
 
 Produce taxes, in southern con- 
 federacy, 270, 271, 272. 
 
 Profits, definition of, 4, 5. 
 
 Progressive income taxes, de- 
 fined, 10; 321. 
 
 Proportional income taxes, de- 
 fined, 9; 321. 
 
 Proportional progressive tax, ex- 
 plained, 10. See Appendix A. 
 
 Prussia, 88-106, 313, 314, 316, 317. 
 
 Publicity (of incomes), 181; in 
 United States, 251, 286. 
 
 Queensland, 21. 
 
 Rates (see various countries), 
 
 comparative, 311, 314. 
 Regressive income taxes, defined, 
 
 11. 
 "Representative taxpayers," in 
 
 Cape of Good Hope, 51. 
 Republican Convention of 1908, 
 
 277. 
 
 Reuss (Older line), 116, 129. 
 Reuss (Younger line), 117, 129. 
 Rhode Island, 207, 294, 295, 305. 
 Roche, Jules, 77. 
 Roosevelt, President, 277. 
 Root, Elihu, Senator, 281, 292, 
 
 305. 
 Russia, 176. 
 
 St. Gall, 201. 
 
 St. Vincent, 181, 313. 
 
 Savings banks, 258. 
 
 Saxe Altenburg, 121, 129. 
 
 Saxe-Coburg, 123, 129. 
 
 Saxe-Gotha, 123, 129. 
 
 Saxe-Meiningen, 123, 129. 
 
 Saxe- Weimar, 123, 129. 
 
 Saxony, 118, 129, 309, 313, 314, 
 316. 
 
 Schaffhausen, 201. 
 
 Schaumberg Lippe, 124, 129. 
 
 Schwarzburg - Rudolstadt, 124, 
 129. 
 
 Schwarzburg - Sondershausen, 
 124-129. 
 
 Seligman, Edwin, R. A., 140, 203, 
 217, 258 n., 291, 321 n. 
 
 Seychelles, 182, 313. 
 
 Sherman, Senator, 246. 
 
 Single tax, 19, 20 n., 34. 
 
 Sixteenth Amendment, 287. 
 
 Sloan, I. C, 293. 
 
 Socialists, in France, 78; in Ger- 
 many, 86. 
 
 Socialist Convention of 1908, 277. 
 
 Solothurn, 201, 313. 
 
 South Australia, 24. 
 
 South Carolina, 209, 229, 294, 
 305. 
 
 Spain, 183-188, 310, 311, 313, 
 314. 
 
 Spreckles Case, 275, 278. 
 
 State income taxes, 209, 210. 
 
 Steiger, J., 201. 
 
 Stetson, Frances Lynde, 292. 
 
 Stevens, Thaddeus, 238. 
 
 Stoppage at source, in England, 
 70. 
 
 Summary, 307. 
 
 Super-tax, defined, 16; in Eng- 
 land, 67; in Prussia, 101; in 
 Wuerttemberg, 126; in Hol- 
 land, 144 n. ; in general, 314 n. 
 
 Supplementary tax, defined, 16; 
 in Western Australia, 33; on 
 salaries in Austria, 41 ; in 
 France, 78, 83 ; in Prussia, 100 ; 
 in Bavaria, 111 ; in Brunswick, 
 113 ; in Hesse, 114 ; in Saxony, 
 119, 120; in Saxe-Gotha, 123; 
 in Hungary, 147; in Luxem- 
 burg, 164; in Norway, 166; in 
 Philippines, 175; in Russia, 
 177; in Switzerland, 202; in 
 United States, 245; German, 
 314 
 
 Sweden, 109, 188-194, 310, 311, 
 313 ; compared with Baden, Wi 
 
 Switzerland, 194-202, 310, 313.
 
 INDEX 
 
 347 
 
 Taft, President, 277, 278, 285, 288. 
 
 Taney, Chief Justice, 261 n. 
 
 Tasmania, 26. 
 
 Tennessee, 231. 
 
 Terneuzen, 143. 
 
 Tessin, 201. 
 
 Texas, 231. 
 
 Thurgau, 201. 
 
 Tooke, John Home, letter of, 73 
 
 n. 
 Trade tax, 122, 127, 137, 145, 176, 
 
 177, 186, 196. 
 Transfer tax, 103. 
 
 Unearned income tax, 102. 
 United States bonds, tax on, 214, 
 
 232, 243. 
 United States, Civil war income 
 
 tax in, 237. 
 
 Vermont, 208, 295, 306. 
 
 Victoria, 29. 
 
 Virginia, 208, 232, 294, 295, 305. 
 
 Waadt, (Vaud), 196 n. ; 201, 313. 
 Waldeck, 124, 129. 
 Wallis, (Valais), 201. 
 "War tax" of 1898, 275, 276. 
 Wells, David A., 245-246. 
 Western Australia, 33. 
 West Virginia, 235. 
 Wickersham, Attorney - General, 
 
 274, 278, 283. 
 Wilson, Henry M., 46. 
 Willson, Augustus E., Governor, 
 
 297. 
 
 Wuerttemberg, 125, 129, 313. 
 Zug, 201, 313. 
 Zurich, 201, 313.
 
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