CHAPTER III THE INCOME TAX IN OTHER COUNTRIES THE income tax is found in many other countries.1 But with a few exceptions it is a fact either that these countries are themselves small and unimportant, or on the other hand that the income tax plays a most insignificant rôle in the fiscal system. As this work is an attempt not to compile statistics or legislative provisions, but to explain the important developments, we shall pass over all the other foreign countries with exception of Austria, Italy, and Switzerland. These we shall now proceed to examine, for each of them has a decided lesson to teach us. § 1. Austria In the eighteenth century Austria, as a part of the German Empire, had very much the same system of taxes as the other German states, namely a system of property and produce taxes combined with an excise.2 Austria differed, 1 The income tax is found for either state or local purposes, or both, in almost all the European countries, like Austria, Italy, Spain, Belgium, Sweden, Norway, Denmark, Switzerland, Holland, Greece, Luxemburg, and Finland; in Australia and New Zealand; in Japan and India; and in the Cape of Good Hope and Hawaii. The statistics as to these will be found in Kennan, Income Taxation, 1910. A large amount of detail on these countries will also be found in Seligman, Progressive Taxation, 2d ed., 1908, part 1, and the literature there mentioned. An appreciation of the Australian system will be found in the evidence of Mr. Coghlan before the Select Committee on the Income Tax, 1906, pp. 88–105. 2 For an account of the earlier Austrian experiments with the income tax, see M. Heckel, Lehrbuch der Finanzwissenschaft, vol. 1, 1907, pp. 371 et seq. For the more recent developments, see the articles by M. Lesigang, "Die bisherigen Versuche zur Reform der Direkten Steuern in Oesterreich," Finanz Archiv, vol. vi (1889), pp. 538 et seq.; Sieghart, "Die Steuerreform in Oesterreich," ibid., vol. xiv (1897), pp. 1 et seq.; Freiherr von Myrbach, " Die Reform der Direkten Steuern in Oesterreich," Schmoller's Jahrbuch, vol. xxii (1898), pp. 93 et seq.; Von Fürth, however, from some of her sister states in that she made experiments with a personal tax during the eighteenth century. These took the form of class taxes under the name of Personal-, Rang-, und Standessteuern. We find even sporadic attempts at an income tax, as, for instance, in 1743, and again in the war taxes of 1778, 1789, and 1790. All these taxes were, however, entirely of an ephemeral nature, and we hear nothing more of them during the first half of the nineteenth century. The revolution of 1848, however, brought about the same movement in Austria as in the other German states, with the exception that in Austria it was financial necessity rather than democratic tendency which led to the introduction of the income tax. At that time the direct taxes consisted of the land tax, the buildings tax, and the earnings tax (Erwerbsteuer), and the idea was to add to these taxes on product another tax of a similar nature which should reach the earnings of capitai as well as of wages. Accordingly, in 1849, the so-called income tax was introduced as a temporary measure. The law was confessedly defective, but was excused on the ground both of its pressing urgency and of its temporary character; but instead of being abolished at the end of the term, as had been anticipated, it was continued from year to year with occasional amendments. Moreover, the wars of 1859 and 1866 necessitated not only a continuance of the law, but an increase of the rates. The original act of 1849, with its amendments during the fifties and the sixties, provided for three schedules. The first included incomes from business already subject to Die Einkommensteuer in Oesterreich und Ihre Reform. Vienna, 1892. For the latest reforms see F. von Wieser, Die Ergebnisse und Aussichten der PersonalEinkommensteuer in Oesterreich. Leipzig, 1901; Freiherr von Myrbach, Grundriss des Finanzrechts. Vienna, 1906; O. Mann and H. Jedlicka, Das Oesterreichische Personalsteuergesetz nach dem derzeitigen Stande der Praxis. Vienna, 1904; Meyer, Pensch, et al., Die direkten Personalsteuern. Vienna, 1907 [with a full bibliography]; E. Bundsmann, Die österreichische Personal-Einkommensteuer. Innsbruck, 1909; V. Marcé, L'Impôt sur le Revenu en Autriche. Paris, 1907. An account of the Austrian system will also be found in the English Blue Book quoted on p. 339. Cf. also R. Sieghart, "Reform of Direct Taxation in Austria," Economic Journal, vol. viii (1898), pp. 173 et seq. the earnings tax. It also comprised mining profits and agricultural profits. Originally levied at the rate of five per cent, it became, in the course of time, a progressive tax. In the case of certain associations and corporations falling within. the schedule, a rather extreme progressive rate was adopted, ranging from two and one-half to almost ten per cent.1 The second schedule comprised incomes from personal exertions, including professional incomes not subject to the earnings tax. This was also arranged according to a progressive scale. The third schedule included incomes from capital and what we should call intangible personalty. The rate was not progressive, but different kinds of income were taxed at different rates. Corporations were taxable in the first schedule, and had the right to deduct the tax from the dividends and interest. in practice they made no use of this right. But The income tax of 1849, with its amendments, suffered from several defects. In the first place, the construction of the law was clumsy in that no real attempt was made to adjust the income tax to the already existing taxes on product, thus leading to much double taxation. Secondly, the administrative features were not worked out in harmony with the customs of the country, and in the third place, the rate of the tax was entirely too high. Not only had the normal rate become ten per cent, but additions for local purposes were permitted, ranging in some cases up to double the state tax. A tax of twenty per cent on income in time of peace was, of course, entirely unendurable, and just as is the case with the local property tax in the United States which, strictly enforced, would take from thirty to fifty per cent of a man's income, the ordinary taxpayer considered it perfectly justifiable to evade the tax as far as possible. The struggle which ensued between the administration and the government resulted in Austria, as it has resulted very largely in the United States, in a system of exceedingly lax administration, whereby 1 The exact graduation of this and of the other schedules in the Austrian income tax will be found in Seligman, Progressive Taxation, 2d ed., 1908, pp. 58, et seq. the officials made a practice of permitting individuals to return only a small part of their income. The vice of such a system, there as here, is of course the inequality and the resulting injustice of the arrangement in particular cases. The dissatisfaction with these immense frauds and evasions on the one hand, and with the lax administration of the law on the other, prompted the Austrian government, during the seventies, to attempt a general reform of the whole system. So deep-rooted, however, had the old customs become that such a general reform proved to be entirely impracticable. It was only toward the end of the eighties, when the government finally decided to content itself with attempts at partial reform, that any progress at all was made, and even here it took several years of hard work until various ministers of finance, like von Plener, Bilinski, and the well-known economist Boehm-Bawerk, took part before the law of 1896 was enacted. 66 The new act is entitled "The law affecting the direct personal taxes," and as the title indicates, no attempt was made to deal with the existing taxes on product, and especially the taxes on land and buildings. The law is divided into five parts. In the first place, it deals with the so-called general earnings tax (Allgemeine Erwerbsteuer), which is modelled largely on the Prussian tax. Secondly, it includes a so-called corporation" tax, applying to all associations, at the rate of ten per cent. The third element is the so-called Rentensteuer, which takes the place of the old third schedule of the original The rates, however, are from one and one and one-half to ten per cent. The remaining two schedules of the original income tax were consolidated into what is known as a general income and salary tax (Personaleinkommen- und Besoldungssteuer). These are arranged according to a graduated scale, rising to five per cent on general incomes, and reaching six per cent on salaries over 15,000 florins [or, to use the recently introduced money unit, 30,000 crowns].2 tax. 1 Das Gesetz über die Direkten Personal Steuern, v. 25 Oct. 1896. The income tax is assessed on all resident Austrians, so far as their income is concerned. Non-resident Austrians are taxable on their income derived in Austria. Foreigners, including Hungarians, who have resided for more than a year in Austria, are taxable on their income derived in Austria. The income from foreign sources is exempt if it is already subject to a lump-sum income tax. The higher courts, however, have decided that this exemption does not apply in the case of the English, the Italian, or the Hungarian income tax. The law authorizes the government to conclude treaties with foreign countries, on the principle of reciprocity, and by an act of 1899 such a reciprocal arrangement was made with Germany, whereby the income from real estate is to be taxed only where it is situated, and the income from personal property only in the land of actual domicile. The exemptions and abatements are similar to those in Germany. A minimum of 1200 crowns is entirely exempt. In the case of incomes under 4000 crowns an abatement of one-twentieth of the income is permitted for each dependent beyond two; in the case of incomes under 10,000 crowns an abatement of not to exceed three classes is permitted for any circumstances which diminish the ability to pay, such as illness, assistance of parents, education of children, or military service. Finally, peasant proprietors with an income up to 500 crowns (which may be increased by the Minister of Finance to 600 crowns) are freed from taxation. Taxable income is defined as the sum of all revenues in money or in money's worth to the individual, including the rental value of his house and the value of his produce consumed for family purposes, after deducting interest on indebtedness, as well as all expenses incurred in securing the revenues. Extraordinary receipts, such as those from gifts, inheritances, and the like are not considered taxable income. Profits from sales are included only if they are the result of regular business or of speculative transactions. Life insurance premiums are deducted up to 200 crowns a year for a single life, and 400 crowns for the family. The items that |