Mr. Attorney General's Argument for the United States. Congress has determined to tax and has taxed income generally. It is that Congress has made exemptions in favor of certain classes, and the plaintiffs' contention, if pushed to its logical conclusion, means that Congress cannot tax income at all without taxing ratably the income of every man, woman, and child in the country. The preposterously harsh and impolitic operation of any such tax as that it is not necessary to descant upon. Congress has rightfully repudiated any such plan. While taxing incomes generally, it had full power to make such exemptions as its views of public policy required, and the only real question now and here is, has it abused or exceeded that power of exemption? The tests already stated are applicable, and being applied render but one answer to the question possible. The statute makes no exemption in favor of a class that is not based on some obvious line of public policy, and, the class being established, one uniform rule is applicable to its members. Take, for example, the principal classification of all the grand division by which the entire population of the country is separated into people with incomes of $4000 and under who are non-taxable, and people with incomes of over $4000 who are taxable. It is manifest that in this distinction Congress was proceeding upon definite views of public policy and was aiming at accomplishing a great public object. It was seeking to adjust the load of taxation to the shoulders of the community in the manner that would make it most easily borne and most lightly felt. Having so much revenue to raise, it might have got it by a proportional tax upon the entire income of all the people of the country. But it bore in mind the fact that a small sum taken from a small income is an infinitely greater deprivation than a large sum taken from a large income; that in the one case the very means of decent support might be impaired, while in the other the power to command all the luxuries of life would hardly be affected. Acting upon these considerations or considerations such as these, Congress undertook to exempt moderate incomes from the tax altogether. It had to draw the line somewhere, and it drew it at $4000. The same objections in point of principle would have existed if it had drawn Mr. Attorney General's Argument for the United States. the line at $400, or at any other figure. But no objection in truth lies at all, because it is entirely evident that, as well in exempting incomes of $4000 and under as in taxing incomes of over $1000, Congress has been governed by what it deemed sound public policy. Take another illustration - an example of a class formed by way of exception to a larger class. The statutory general rule is that every taxpayer is entitled to a fixed deduction of $4000 before taxable income is reached. In the case, however, of a family consisting of husband and wife, or parent and a minor child or children, there is but one $4000 deduction from the aggregate income of all the members of the family. Here is a differentiation of a special class whose members may be taxed higher than others having incomes of the same amount. But the discrimination is not arbitrary nor senseless, but is founded on obvious views of equity and policy. It assumes - what is undoubtedly truethat as a rule there is but one income and one breadwinner to one family, but, recognizing the fact that the rule has many exceptions, it makes the existence of several incomes to a family the just and proper basis of a somewhat higher rate of tax. It is an attempt, in short, to tax with some regard to the capacity of the taxpayer to bear it. Take another illustration that of a class which the plaintiffs' counsel dwell upon at great length and with exceeding unction - the class, namely, of business corporations. Their net incomes are taxed at the standard rate of two per cent undiminished by the standard deduction of $4000. The result is that a man in business as a member of a corporation is taxable at a little higher rate than a man in the same business by himself or as a copartner. Here, it is claimed, is a distinction without a difference, is the establishment of a special class without special reasons of equity and policy to justify it. But I venture to submit that that is not so, and that the higher statutory rate of tax for corporate incomes is founded upon and vindicated by essential differences in the conditions under which corporations and individuals respectively carry on business. The advantages acquired by doing business as a corporation, rather than as individuals or partners, are plain and are notorious. The Mr. Attorney General's Argument for the United States. interest of a corporator is in distinct and tangible shape, is marketable at any moment, and is unaffected by the insolvency or decease of other corporators. It is an interest attended with a definite and limited liability for debts. It is an interest through which the corporator ratably participates in all the benefits arising from the transaction of business on a large scale. These and other like commercial advantages of incorporation are wholly dependent upon legislative grant, which is the only fountain of corporate franchises. But so pronounced and so general has been the appreciation of these advantages that there is hardly a State of the Union which does not facilitate the formation of business corporations by a general corporation law, and that the great and ever-growing multitude and variety of such corporations is one of the striking phenomena of modern times. It is common knowledge, indeed, that corporations are so successful an agency for the conduct of business and the accumulation of wealth that a large section of the community views them with intense disfavor as malicious and cunningly devised inventions for making rich people richer and poor people poorer. When, then, this income-tax law takes a special class of business corporaations and taxes their incomes at a higher rate than that applied to the incomes of persons not incorporated, it simply recognizes existing social facts and conditions which it would be the height of folly to ignore. It but classifies and discriminates upon the plainest basis of equity and public policy, upon a superiority of business conditions both enabling those enjoying them to pay a special and higher rate of tax and making it just and equitable that they should pay it. Other like exemptions of the statute, covering religious, educational, charitable and semi-charitable companies, and embracing institutions where wage-earners lodge their scanty earnings and by which persons of small means are enabled to coöperate in various ways for mutual security and benefits, these exemptions rest firmly upon the same legal footing of a wise and humane public policy. It would be tedious and cannot be necessary to consider each in detail. Suffice it to say that the statute lays down a rule for the taxation of incomes generally, Mr. Attorney General's Argument for the United States. and then adds qualifications, exceptions, and exemptions, as to no one of which can it be fairly said that it does not represent an honest attempt of Congress to make the operation of the tax just and equitable, and that it does not reflect the honest views of Congress respecting the requirements of true public policy. That being so, it avails nothing for the plaintiffs to point out instances in which the law taxes property twice over or produces other inequalities and incongruities in the way of taxation. Nothing else could be expected and nothing different, it is safe to predict, would result from any other law, even if the plaintiffs had the drawing of it. It avails nothing, also, for the learned counsel to convince themselves, and perhaps the court also, that Congress's views of public policy are quite mistaken. When they have done that, what have they accomplished? They have gone through an intellectual exercise which from the character of counsel is bound to be both interesting and brilliant. But they have accomplished nothing else because, be Congress's views of public policy ever so mistaken, this court cannot avoid ruling that it is absolutely bound by them. My endeavor has been to eliminate and discuss such of the legal issues presented as are not already too conclusively settled to admit of discussion, and to do so succinctly, without unnecessary elaboration of details, and without being betrayed into those by paths of metaphysical and economical and historical inquiry which, however fascinating in themselves, have so little connection with the real business of the case. It would be a mistake I am aware that the court is in no danger of falling into it - but it would certainly be a mistake to infer that this great array of counsel, this elaborate argumentation, and these many and voluminous treatises miscalled by the name of briefs, indicate anything specially intricate or unique either in the facts before the court or in the rules of law which are applicable to them. An income tax is preeminently a tax upon the rich, and all the circumstances just adverted to prove the immense pecuniary stake which is now played for. It is so large that counsel fees and . costs and printers' bills are mere bagatelles. It is so large Mr. Carter's Argument for Appellee in 894. and so stimulates the efforts of counsel that no legal or constitutional principle that stands in the way, however venerable or however long and universally acquiesced in, is suffered to pass unchallenged. It is matter of congratulation, indeed, that the existence of the Constitution itself is not impeached, and that we are not threatened with a logical demonstration that we are still living, for all taxable purposes at least, under the régime of the old Articles of Confederation. Seriously speaking, however, I venture to suggest that all this laborious and erudite and formidable demonstration must necessarily be without result on one distinct ground. In its essence and in its last analysis, it is nothing but a call upon the judicial department of the government to supplant the political in the exercise of the taxing power; to substitute its discretion for that of Congress in respect of the subjects of taxation, the plan of taxation, and all the distinctions and discriminations by which taxation is sought to be equitably adjusted to the resources and capacities of the different classes of society. Such an effort, however weightily supported, cannot, I am bound to believe, be successful. It is inevitably predestined to failure unless this court shall, for the first time in its history, overlook and overstep the bounds which separate the judicial from the legislative power-bounds, the scrupulous observance of which it has so often declared to be absolutely essential to the integrity of our constitutional system of government. Mr. Herbert B. Turner filed a brief on behalf of The Farmers' Loan and Trust Company, appellee in 893. Mr. William Jay and Mr. Flamen B. Candler filed a brief on behalf of The Continental Trust Company, appellee in 894. Mr. James C. Carter for the Continental Trust Company, appellee in 894. Mr. William C. Gulliver was with him on the brief. I appear here for the Continental Trust Company. This is one of the companies which, it might be supposed, represent interests which would be the especial subjects of income tax VOL. CLVп-33 |