If a resident foreigner is taxed on his entire income here, and is again taxed on his income at home, we have manifestly double taxation. Or if a non-resident citizen is taxed by us on his entire income, and is then again taxed abroad in the country in which he happens to reside, we have a not less glaring case of double taxation. Some states, like Prussia, tax foreigners only after they have lived more than a year in the country, except when their income is derived from Prussian property or business. The law of 1894 contained no such provision. Again, while England does in part assess resident aliens, it does not attempt to reach the entire income of non-resident citizens. The Civil War taxes did not at first even tax the income of aliens; but later they did try to reach the entire income of non-resident citizens. The new tax followed the mistaken policy of the later laws. But the practical effect of the provision would have been slight. For this part of the law, it may be conjectured, would almost inevitably have remained a dead letter.

§ 4. The Alleged Shortcomings of the Law

What, then, are we to think of this measure? Was it a wise innovation, or was it essentially vicious in principle and destined to be ineffective in practice? We can, perhaps, best approach the problem by discussing some of the objections that were raised against the law.

One of the arguments most commonly advanced by the opponents of the measure was the alleged socialistic character of the tax. To assess people upon their income was said to savor of socialism. The more violent enemies of the measure went so far as to maintain that the state has no right to confiscate any part whatever of a man's earnings. This objection, indeed, scarcely deserves a refutation. It entirely misconceives the relation of the individual to the state. The cry of "socialism" has always been the last refuge of those who wish to clog the wheel of social progress or to prevent the abolition of long-continued abuses. The

Com

factory laws were in their time dubbed socialistic. pulsory education and the post-office system were called socialistic. And there is scarcely a single tax which has ever been introduced which has not somewhere or other met with the same objection. Only a short time ago the new inheritance taxes were vehemently opposed in some of the American commonwealths, as was the new estate duty in England, on the ground of socialism. The same fate befell the property tax before its recent introduction in Holland and Germany. As a matter of fact, if there is any socialism at all to be discovered in these measures, it would be far more obvious in the property tax, which entirely exempts all earnings of the lower classes in so far as they are again expended, than in the income tax, which reaches earnings from other sources than mere property. The property tax hits only the property owner; the income tax, as such, hits the income receiver, whether the income be derived from property or not. Yet we have become so accustomed to the property tax that the idea of its being socialistic seems ridiculous. Nor are we speaking here of the exemption feature of the income tax law, which will be discussed below. The cry of socialism was raised against the income tax per se, while the high exemption only served as an additional count against it.

Had the principle of progressive taxation been introduced, some color might have been lent to the charge of socialism. The Populists, it will be remembered, introduced several amendments looking toward graduation, but they were all defeated. As a matter of fact, however, recent investigations have shown that progressive taxation, which to some seems the very quintessence of socialism, and which has undoubtedly often been urged for socialistic reasons, is perfectly defensible in theory on purely economic and fiscal grounds although, for other reasons, its application to the income tax is practically inexpedient. It must be remembered, moreover, that the income taxes of the Civil War period were levied on the progressive principle, and were defended on purely economic Cf. infra, Conclusion, § 3.

1 Cf. supra, pp. 31-34.

grounds both by the administration and by the legislators. England has not hesitated to introduce, within the last few years, a progressive income tax, and the great extension recently given to the progressive principle in countries like Holland, Switzerland, Germany, and Australia, shows that the legislators are not blinded by mere words. As it was, Congress did not attempt any graduation of the income tax, except in so far as the $4000 exemption provided for a sort of restricted progression. The cry of socialism had no effect. A still weaker objection was the alleged un-American and undemocratic nature of the tax. The tax was represented as peculiar to monarchic governments and the effete civilization of the old world. Senator Hill roundly asserted that the income tax was unknown in democratic communities.1 But even if it be conceded that England is the home of hide-bound mediævalism, it is hard to include the cantons of Switzerland or the colonies of Australasia in any such category. No one acquainted with the facts need be told that the income tax has been most fully developed precisely in the most democratic communities, and that the whole tendency toward democracy, even in non-republican states, has gone hand in hand with the extension of direct taxation, and more especially of the income tax. Had this absurd objection not been so widely quoted and copied, it would not deserve mention here.

While the above objections to the income tax law are not of a very serious character, there was perhaps a deeper foundation for the charge that the measure was an expression of sectional animosity. The exemption of $4000 incomes practically meant that the Western and Southern states would gain at the expense of the industrial centres in the East and North. In many of those states individual incomes above the exemption point were comparatively few. And it is undoubtedly a fact that the enthusiasm for the tax came chiefly from those who were thus assured freedom from its burdens. But it must not be forgotten that there was much provocation. The Southern states had for years been compelled to bear the bur1 Cf. also his denunciation of the "foreign professors," supra, p. 503.

dens of the tariff, the proceeds of which went in great part to the pensioners of the North. It is but natural that when an opportunity came, the tables should be turned. Again, as we have already seen, the Western states felt that they were being unjustly treated by a national revenue system, of which they felt the incubus, but the advantages of which were not so plain. To them also the income tax seemed a piece of retributive justice. So that the sectional animus, which was no doubt present to some degree, despite Wilson's statement to the contrary,1 may be explained and even partly excused. The sectional feeling itself, however, was considerably exaggerated. For the chief explanation of the income tax is not so much geographical as economic in character. It was not so much a movement of the South and West against the North and East, as of the agricultural class against the industrial and moneyed class. It is simply an accident that the East is the home of the moneyed interest, while the West and South are the home of the landed interest. If any class antagonisms are discernible, they were primarily economic and only incidentally sectional.

The fourth and final objection that was preferred was the old but ever new contention that the income tax, however wise in theory, works badly in practice. That there is considerable truth in this is not to be denied. But it is usually forgotten that in dealing with problems of this character the real inquiry is not what is absolutely good, but what is relatively best. So far as the objection is true, it will be found to be due in great part to certain provisions of the law which, as we shall see, might have been avoided. But of the objection itself too much has been made.

We have seen above2 that the Civil War income tax, at first, at least, worked more satisfactorily than the contemporaneous local property taxes. And our study of the situation in England and Germany has proved that an income tax does not necessarily work badly in practice. It depends entirely upon the manner in which the tax is administered.

1 Supra, p. 501.

2

Supra, pp. 473-5.

It appears from the above review that most of the objec tions urged against the income tax either entirely lacked foundation or were the results of considerable exaggeration. To those acquainted with the history of the English income tax, the objections will seem quite familiar. Similar points were made year after year, and often in almost the same language; but the tax, nevertheless, commended itself to the people as a whole, and it has persisted and developed. So also it is possible that the new tax, especially in the great industrial centres, would have succeeded better than the present tax on intangible personalty. Imperfect as it undoubtedly was, the income tax might have proved to be a relative good, and to have constituted a considerable improvement over the existing system.

§ 5. The Real Defects of the Law

After all has been said, however, it remains true that too much could not be hoped from the practical working of the income tax. A system which rests on a method of selfassessment manifestly opens wide the door to fraud and evasion. The provisions for supplementary revision of the returns in certain cases by official assessments were far from adequate. The methods of checking the returns by utilizing the probate courts and the inventories of property after death, which are customary in Germany and even in democratic Switzerland, would not be possible as yet in America. And although much of the inquisitorial character of the former income tax had been removed by the stringent provisions in the new law calculated to insure secrecy, there can be very little doubt that the effort to secure correct returns of individual incomes would have been far from successful. Above all, there were certain grave defects in the new law, which, in contrast to the more or less imaginary or highly exaggerated objections adverted to above, are deserving of serious consideration.

In the first place, all incomes were treated alike. There was, technically speaking, no differentiation. The tendency