then demands that it be made by a dull knife, I can only call him a fool. We all confess that we want an income tax, but we are not willing to grant the means whereby it can become an income tax. We are ready to have people pay according to their income, but we refuse to let any one ascertain what the income is." 1

Nothing came of this second project. But the need of more revenue had now become so imperious that the government resolved to take what it could get. Consequently in 1851 it introduced a third bill, which endeavored to accomplish only a partial realization of the income-tax idea, and which included a retention of the grist and slaughter taxes. This finally went through both houses, and became law.

The act of 1851 provided for a so-called "class- and classified income tax." 2 The old class tax was, with a few modifications, limited to taxpayers with an income up to 1000 thalers, and was levied throughout the state except in the 83 largest cities, which in lieu of this were to be subjected to the old grist and slaughter tax. On the other hand, the new classified income tax was payable by all individuals having an income of 1000 thalers, whether they lived in town or country. The class tax was divided into three main and twelve subclasses; the classified income tax was divided into thirty classes, with fixed monthly payments varying from 2 to 600 thalers, i.e., 30 to 7200 thalers annually. This was, however, subject to the provision that the annual tax should never exceed three per cent of the income in each class. Accordingly, the highest income taxable was 240,000 thalers. Incomes above this amount were entirely exempt, and even the wealthier individuals, nominally subject to the tax, could escape their modest contribution by remaining in a large city for one day more than a half year. Moreover, as the limitation of three per cent applied only to the minimum income in each class, the higher incomes in each class paid considerably less than three per cent. The characteristic

1 Quoted in Held, op. cit., p. 292.

2 Die Klassen- und klassifizierte Einkommensteuer.

part of the system, however, consisted in the fact that while the incomes were to be assessed by officials, these were strictly forbidden to make any "vexatious inquiry into the income or property conditions of the taxpayer.'

Thus a step in advance, although a very small one, was taken, and with this the tax reformers had to be content for two decades. With every year, however, not only the administrative shortcomings, but the essential inequalities, of the tax, were more and more realized, and the growing prosperity of the kingdom brought into continually stronger relief the virtual exemption of the wealthier taxpayers. The successful experience of the English income tax, which had already been touched upon in the fifties, especially by Kries,2 was made known to the German public toward the close of the sixties in a comprehensive work by Vocke, and the scientific writers now began a discussion of the problem from the newer standpoint of social reform. Professor Nasse in 1861, like Hoffmann in 1840, had indeed declared himself as on the whole favorable to the retention of the tax on product, side by side with a developed income tax. But he was almost the last of the important publicists to take this attitude. Not only did secondary writers like Emminghaus, Rössler, Walcker, Eisenhart, and Maurus,5 in the sixties show themselves in favor of the income tax, but prominent men like

1"Jedes lästige Eindringen in die Vermögen-und Einkommen-Verhältnisse des einzelnen Steuerpflichtigen."

2 See Kries, "Grundzüge und Ergebnisse der Englischen Einkommensteuer," in Zeitschrift für die Gesammte Staatswissenschaft, vol. x (1854). Kries followed this by two studies of the Prussian system. "Ergebnisse der Preussischen Einkommensteuer," ibid., vol. xi (1855); and “Die Preussische Einkommensteuer und die Mahl- und Schlachtsteuer," ibid., vol. xii (1856).

8 Geschichte der Steuern des Britischen Reichs. Ein Finanzgeschichtlicher Versuch. Von W. Vocke. Leipzig, 1866. See esp. pp. 505-590.

4 W. Nasse, Bemerkungen über das Preussische Steuersystem. Bonn, 1861. 6 K. B. A. Emminghaus, Ueber die Steuerfrage. Bremen, 1862; C. Rössler, Die Gesichtspunkte der Steuerpolitik. Berlin, 1868; K. Walcker, Die Selbstverwaltung des Steuerwesens. Berlin, 1869; H. Eisenhart, Die Kunst der Besteuerung. Berlin, 1868; Maurus, Die Moderne Besteuerung und die Besteuerungsreform. Heidelberg, 1870.

Stein affirmed that "the taxation of income in whatever form it may appear is the fiscal field of our present and future; just as surely as it was impossible in former centuries, so surely will it more and more become the chief tax of the future."1 Above all, at the beginning of the seventies, men of the first rank, like Held, Knapp, and Conrad, now took the matter up vigorously.2

The happy termination of the war with France, with its immense indemnity, had removed all concern of a purely fiscal nature not only from the new empire, but from the separate states, and the way was now clear for a discussion of tax reform from the point of view of equality and social justice. In this movement the young and brilliant Professor Adolf Held took a leading part, and his book on the income tax, published in 1872, was a thoroughgoing study of the fundamental principles of taxation, from the new standpoint, with special reference to the German conditions.3 Held dissected the existing situation with a merciless knife, and showed conclusively that there was imperative need not only for the abandonment of the Prussian grist and slaughter tax in the towns, but also for the repeal of the taxes on product, and the substitution of a general income tax in place of the class tax. This income tax, together with carefully chosen indirect taxes, form in his opinion the model revenue system. For Held, like all modern writers, was unalterably opposed to a single income tax, or for that matter, to a single tax of any kind. A similar programme was sketched for the other German states, especially Saxony and Bavaria. His conclusion is worth

1 "Die Einkommensbesteuerung, möge sie nun in welcher Form immer auftreten, ist das Steuergebiet unserer Gegenwart und Zukunft; so gewiss sie in allen früheren Jahrhunderten ummöglich war, so gewiss wird sie mehr und mehr die Hauptsteuer der Zukunft werden." — Lehrbuch der Finanzwissenschaft. Von L. von Stein. Leipzig, 1861, p. 303.

2 See an article by J. Conrad, in Hildebrand's Jahrbücher, 1871, p. 6; and the book of F. Knapp, Ertragssteuer oder Einkommensteuer. Leipzig, 1872.

3 Die Einkommensteuer. Finanzwissenschaftliche Studien zur Reform der di recten Steuern in Deutschland. Von Dr. Adolf Held. Bonn, 1872.

R

giving. "In this development and shape we consider the income tax to be the relatively best direct tax. Even though Thiers has recently called the income tax the socialism of taxation, a dangerously concealed socialism, we are not disturbed by the objections of this old protectionist and bourgeois economist; for there is a kind of socialism, i.e., the emphasis on the social and political duties of the upper and wealthier classes, which is decidedly necessary if we desire to avoid the really dangerous socialism, that of the Paris Commune." 1 The newly formed Association for Social Politics (Verein für Sozialpolitik) also took up the matter and published in 1873 a series of expert opinions on the subject.2 Professor Birnbaum, of the university of Leipzig, followed with an interesting work on the applicability of the income tax, especially to Saxon conditions.3 In this he made a thorough study of the English methods, and of the income tax, which had for some time been in existence in the free states of Hamburg and Bremen. Birnbaum concluded that the tax on product must give way to the income tax. A study even more favorable to the direct income tax in contrast to what he called the semi-produce tax system of the English income tax (ertragsteuerähnliche Einkommensteuer) was made by Dr. Glattstern. Finally, Professor Neumann, of Freiburg, wrote two masterly works on the income tax, one of which dealt especially with the situation in Baden, where conditions were not quite so favorable as in Prussia to a conversion of the taxes on product into an income tax.5

1 Held, op. cit., p. 329.

2 Die Personalbesteuerung.

Schriften des Vereins für Sozialpolitik. Gutachten von E. Nasse, A. Held, J. Gensel, von Wintzingerode, und C. Rössler. Leipzig, 1873. An independent work was that of Weygold, Zur Steuerreformfrage in Preussen mit besonderer Rücksicht auf die Ausführbarkeit einer allgemeinen Einkommensteuer, Leipzig, 1872.

8 Ueber die Anwendbarkeit der Einkommensteuer und Steuerreformen überhaupt. Von Dr. R. Birnbaum. Leipzig, 1873.

* Die Steuer vom Einkommen. Eine finanzwissenschaftliche Studie. Von Dr. S. Glattstern. Leipzig, 1876.

5 Fr. J. Neumann, Die Progressive Einkommensteuer im Staats- und GemeindeHaushalt. Leipzig, 1874; and the same author's Ertragsteuern oder Persönliche

§ 4. The Reforms in the Seventies and Eighties

As usual, however, the statesmen lagged behind scientific opinion. The efforts of Von der Heydt in 1869 and of Camphausen in 1871 to reform the Prussian system, met with failure; but in 1873, after a very lively discussion, a decided step in advance was taken. The grist and slaughter

tax was abolished as a state impost, and the class tax was now applied to the towns as well as the country. The class tax, although still so called, really became an income tax, because of the provision in the new law that the tax was to be levied "on the basis of the assessed value of the annual income." 2 As a matter of fact, however, this practice had been followed since 1867. For at that date instructions had been issued to take the "presumed income' as "not indeed the only factor in the assessment, but nevertheless the principal one." The line of division between the class and the classified-income tax in the law of 1873 remained as before, at 1000 thalers or now, according to the new German monetary unit, 3000 marks ($750); but a complete exemption was introduced for the so-called minimum of subsistence, which was fixed at 420 marks. With this exception the old twelve classes were still retained, with taxes varying from three to seventy-two marks, so that the rate in the lowest income in each class ranged from fivesevenths of one per cent to two and two-thirds per cent, thus providing for a system of degressive taxation.

The income tax was still so calculated that the rate rose to three per cent on the smallest income in each grade, and the intervals were reduced, thus increasing the number of grades. The upper limit, moreover, was entirely

Steuern vom Einkommen und Vermögen? Ein Wort zur Steuerreform. Freiburg i. Br., 1876.

1 Law of May 25, 1873. The law itself will be found in Hirth's Annalen des Deutschen Reichs, 1874, as well as in the Zeitschrift des Preussischen Statistischen Bureaus, vol. xv (1875). Cf. A. Held, "Die neuen Preussischen Steuergesetze," in Conrad's Jahrbücher für National-Oekonomie und Statistik, vol. xx (1873), pp. 369 et seq. 2 Sec. 7.