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may be deducted for expenses are carefully enumerated. They do not include the payment of debts, the investment of capital, or improvements which exceed the customary allowance for such purposes. Ordinary and periodical profits are reckoned for the preceding year, while profits of an uncertain annual value are computed at the average of three years. This, it will be observed, is just the reverse of the English practice.

Every recipient of income of more than 2000 crowns must make a declaration of his income; those with incomes between 200 and 2000 crowns need do so only when the declaration is especially asked for. The declarations are made on a large sheet, and one of the higher officials advises the taxpayer "to consecrate to this purpose a leisure hour, a moment when he has entire tranquillity of mind, for the matter is not so simple, and is of considerable importance to him." It is, indeed, not a simple matter. Taxpayers are asked to fill out, in two separate columns, headed fixed and uncertain incomes, the revenues from six possible sources: land, houses, business, personal exertion, personal property, and sources not otherwise mentioned. The difficulties in making the declaration arise partly from the definition of income, and partly from the provision as to expenses. What should be considered "money's worth" is very uncertain. Technically, for instance, the value of the official dinners given by a higher to a lower official is required to be included in income. Much difficulty again arises from the fact that a careful account must be kept by the peasants of what they buy and of what they raise for home consumption. In the case of deductions for expenses, again, the wages of the farm laborer may be deducted, while those of the cook may not be deducted.' Similar complications, which might be multiplied, show how

1 Wie das Personaleinkommensteuer-Bekenntniss verfasst werden soll. Von Dr. Rudolph Pensch. Vienna, 1908. For a somewhat earlier work on the same subject, see Steuererklärung und Steuerauflage auf dem Gebiete der direkten Personalsteuern in Oesterreich. Von H. Rauchberg. Vienna, 1907.

2 Die Oesterreichischen Steuerträger. Von Leopold Berg. Vienna, 1898, p. 38.

difficult it is even for the honest taxpayer to make up his return. Moreover, in the declaration he must state the sums due to all creditors, and also the name and address of his employer if he is an employee, or the name, address, and wages of his employees if he is an employer. Finally, two pages are left for further details. In view of all these complexities, it does not surprise us to learn that "when the Mayor of Carlsbad pointed out the facts to a gentleman and asked him: 'Would you like to own some property here?' he turned tail and ran, and has been running ever since." 1

After the declarations are made, they are turned over to the so-called "trusty individuals" (Vertrauensmänner). These trusty individuals existed under the old law; but according to the law of 1896 they now represent the taxpayers, being elected by the local districts. According to the Austrian voting system, however, they represent primarily the larger, rather than the smaller, taxpayers. These trusty individuals are supposed to correct the lists in case of doubt, and then to hand them over to the assessment commissioners. As a matter of fact, however, the trusty individuals have become very largely a paper organization. The assessment commission (Schätzungs-Commission) is composed of a president named by the Minister of Finance and of members half of whom are elected by the taxpayers and half appointed by the government. Their powers are rather wide, although not so wide as in Italy. In case of doubt they may demand further explanation from the taxpayer and may summon experts, but they cannot require the books, nor enter upon the business premises. If still dissatisfied after the examination of the taxpayer, they may estimate his income according to outward signs. Appeals are permitted to the Appeal Commission (Berufungs-Commission) and to the higher courts.

There is no injunction of secrecy, as in a great many other countries. When the law was passed there was a heated contest between those who advocated publicity of returns and those who were in favor of secrecy. The compromise

1 Quoted in Marcé, op. cit., p. 36.

which was adopted provided for making accessible to every taxpayer for two weeks, not the returns of income, but the registers of orders of payment, which contain the names and assessment of taxpayers; but any invidious publication of details was made punishable with fine. The penalties for fraud and evasion are very severe. Evasion (Steuerhinterziehung) is punishable by a fine varying from three to nine times the amount of tax. Evasion (Steuerheimlichung)— which consists in the omission of certain of the returns demanded—is punishable by a fine varying from twice to six times the amount of income.

Such are the chief administrative provisions of the law. They seem to be comprehensive enough and, barring some rather difficult complications, quite up to the level of modern requirements. When we come to inquire how the law works in practice, however, the picture is a different and by no means a rosy one. That the situation is considerably better than it was before the reform of 1896 is undoubted. Nor can it be said that the tax is very unpopular. This absence of discontent is due to several causes. In the first place, the taxpayers themselves participate to a certain extent in the administration of the law, partly through the "trusty individuals," and partly through the assessment commissions. Secondly, the not very high progressive rates are counterbalanced by the preponderance given to the wealthier classes in their official representatives. Thirdly, the income tax is not supplemented by a progressive inheritance tax as in England, or by a property tax as in Germany. Fourthly, and chiefly, the income tax is only a supplementary tax of comparatively slight importance. Not only is the yield of the income tax insignificant, when compared with the other direct taxes, but the produce of all the direct taxes together is small, in comparison to that of the indirect ones. The yield of the income tax indeed increased from forty-four million crowns in 1898 to fifty-nine millions in 1905, and to seventy-eight millions in 1909. But in 1903 the income tax yielded only one-sixth of the income from direct taxes, and only one thirty-fifth of the total

government revenue; and among these indirect taxes must be mentioned not only the taxes on spirits and tobacco, but also those on sugar, on meat, and on salt. The tax on salt alone yielded almost as much as the entire income tax.

Notwithstanding the progressive improvement of the administration, the law is honeycombed with fraud. Those who anticipated that Austria would repeat the unexpectedly good results of the enactment of the Prussian law in 1893 were wofully disappointed. Despite a rather wide latitude given to the officials, and a procedure which, although not comparable to the Prussian, may nevertheless be considered inquisitorial, the officials seem to be unable to ascertain the income of the taxpayers with any approach to accuracy, and the returns are notoriously defective. Writing five years. after the enactment of the law, Professor Wieser called attention to the notorious undervaluations, not only in the country districts, but in general among the wealthiest, as well as among the poorest classes of the population. He sadly confessed that there was no general disposition on the part of the public to make even half-way satisfactory returns. Owing to this lack of public sentiment Professor Wieser called the income tax a torso,1 and after adverting to what he termed "the deplorable (klägliche) results of the new law," he maintained that "all merely legislative changes and any additional powers that might be conferred upon the administrative authorities would be useless without a change in the inner spirit of the law, which could be attained only when the irresistible force of public opinion was gained in favor of the law." But only exceedingly slight progress has been made in winning over public opinion in support of the law, and Dr. Meyer, one of the high government officials, concedes that frauds and evasions have become "epidemic." While it is undeniable that the frauds are slowly diminishing, they still attain immense figures. It is estimated that not more than a third or a half of the actual income is really reached.

So unsatisfactory, indeed, are the results of the efforts to 1 Wieser, op. cit., p. 139. 3 Marce, p. 60.

2

Op. cit., p. 134.

reach the real income that recourse has been taken, to a very large extent, to that section of the law which permits the officials to estimate a man's income according to outward signs, and especially his house rent. There has been much litigation as to the exact meaning of this paragraph.2 In actual practice, however, a man's income is computed at about five times the amount of his house rent. Thus what was designed to be an accurate income tax turns out to be, in large measure, nothing but a very rough sort of a house-rentals tax.

The Austrian income tax, therefore, is far from being a success. Insignificant in yield, it is inadequate in administrative practice. According to the letter of the law, the tax is in many respects admirable; but in the working out of the system there is a sad gap between the intention of the legislator and the actual results. The Austrian income tax is a striking example of the impossibility of making purely paper reforms, and it shows us that no matter how excellent the law or the administrative provisions may be, if they do not respond to the deep-seated convictions of the people, and if they are out of harmony with the business, political, and economic conditions of the country, they cannot possibly succeed. A successful income tax depends in most instances upon the readiness of the people to support the administration, and if this support is lacking, the tax is bound to be a failure. Austria has not yet reached the stage where the public has come to the support of the government, and consequently, despite the undeniable progress that has been made during the past fifteen years, the Austrian income tax must still be pronounced a relative failure.

§ 2. Italy: The Historical Development

The Italian income tax was one of the first products of united Italy. In the separate states which united to form

1 Par. 214.

2 Cf. esp. Mann and Jedlicka, op. cit., pp. 292 et seq.

8 The best accounts of the Italian income tax are, for the earlier period, A. Vesselowsky, L'Impôt sur le Revenu Mobilier en Italie. St. Petersburg, 1879:

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