the progressives of both parties spoke in favor of an income tax.1

The strength which the income-tax proposition developed alarmed the Republican leaders considerably. When, therefore, the inheritance-tax provision was dropped, very largely because of the opposition of the various states, an attempt was made to placate the insurgents by agreeing to enact at once a tax on corporate incomes, and to couple with this the submission of an income-tax amendment to the states. President Taft, who was in part responsible for this, stated in a special message of June 16, 1909: "Although I have not considered a constitutional amendment as necessary to the exercise of certain phases of this power [to tax incomes], a mature consideration has satisfied me that an amendment is the only proper course for its establishment to its full extent. I therefore recommend that both Houses . . . shall propose an amendment to the constitution, conferring the power to levy an income tax upon the national government without an apportionment among the states.

I have become convinced that a great majority of the people of this country are in favor of vesting this national government with power to levy an income tax."

The corpo

The programme was accordingly carried out. ration tax was adopted, but in the form of a tax only on corporate dividends at the rate of one per cent. Senator Aldrich stated, on June 29, "I shall vote for the corporation tax as a means to defeat the income tax," 2 and Senator Root said: "Gentlemen may assume I am for the corporation tax to beat the income tax. I care not. I am for the corporation

1 Among these speeches are especially to be noted those of Hitchcock on February 20, op. cit., vol. 43, p. 2842; of Hull on March 31, op. cit., vol. 44, p. 502; of Bailey on May 3 and 4, op. cit., pp. 1692 and 1749; of Borah on May 5, op. cit., p. 1363; of Sutherland on May 19, op. cit., p. 2243; of Newlands on May 27, op. cit., p. 2518; and of Cummins on July 7, op. cit., p. 4285. In the House of Representatives also a number of speeches were delivered in favor of the income tax, especially by Dixon, Hobson, Dies, Sharp, Hamlin, Cline, and Hinshaw. Op. cit., pp. 4524-4685.

2 Congressional Record, vol. 44, pt. iii, p. 3929.

tax because I think it is better policy, better patriotism, and higher wisdom than the general income tax, at this time, and under these circumstances." The other part of the agreement, however, was the submission of the constitutional amendment.

It would naturally occur to an unbiased observer that the simplest way out of the difficulty would be entirely to eliminate from the constitution the clause or clauses referring to direct taxes. We have learned that the only reason of its original insertion was to effect a compromise on the slavery question. Now that slavery had long been abolished, there was no further reason for retaining the clause in the constitution. We have learned what difficulty was caused by a proper interpretation of the direct clause, not only as affecting the income tax, but as affecting many other measures enacted by Congress. We must not forget that as long as the words "direct taxation" are retained in the constitution, similar difficulties will arise in the future, even if the income tax matter is disposed of. Hamilton's prophecy that we shall be at a loss to find any disposition of the matter which can satisfactorily determine the point has not only come true but will remain true in the future. As it has been well said by Judge Whitney: "Apportioned taxes have turned out a failure. They are difficult enough to assess within the limits of a state and under control of a state board of equalization. They have been tried by the nation, and each trial was a failure. The last direct tax levied was paid back again. There will probably never be another. Whatever taxes are levied in the future will be levied under the rule of uniformity. If we are to amend the constitution, a matter now so often discussed, we should not try to tinker it by introducing a specific exception to a broken down general rule." 1

Congress, however, was unfortunately not much interested in the larger question. What gave it immediate concern 1 Edward B. Whitney, "The Income Tax and the Constitution." Harvard Law Review, vol. xx (1907), p. 296.

was the disposition of the pending imbroglio. It was therefore decided to arrange the matter by an amendment to the constitution which would affect only the income tax. A proposition by Senator McLaurin, on July 5, to strike out the words "direct taxes" in the respective clauses of the constitution was not even debated.1

On April 28 Senator Brown, of Nebraska, had proposed an amendment in the following words: "Congress shall have power to lay and collect taxes on incomes and inheritances, from whatever sources derived, without apportionment among the states, without reference to any census or enumeration." This was, however, withdrawn, and it was not until June 17 that a new amendment was introduced in accordance with the understanding with the leaders of the House. This new amendment read as follows: " Congress shall have power to lay and collect direct taxes on incomes without apportionment among the several states, according to population." It was referred to the committee on finance, and reported back on June 28. In the meantime a change had been made, striking out the word "direct" and inserting the words "from whatever source derived," so that the amendment now read: "Congress shall have power to lay and collect taxes on income from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration." No explanation was made of the change, and when Senator Aldrich reported the amendment, he asked to have it disposed of without debate. It was indeed debated, but the discussion was exceedingly slight. In the House the discussion was a little longer, but still occupied only four hours, and one of the members protested in the following words: "I imagine that nothing which I may be able to say will defeat the prearranged programme, and prevent the passage of the joint resolution; but for the House to perform its part in such a solemn transaction as amending the Constitution of the United States without having the form of the amendment seriously considered by one of its committees, strikes

1 Congressional Record, vol. 44, pp 4109, 4120.

me as a proceeding of extraordinary levity."1 Nothwithstand ing this protest, however, the joint resolution (no. 40) was passed by the Senate on July 5, by unanimous vote,2 and in the House a week later by the overwhelming vote of 318 to 14.3

Thus the amendment started on its way. In the following winter, as the legislatures of several of the states convened, the path seemed to be clear to an acceptance of the amendment, when the country was startled by a message of the reform governor, Hughes, to the legislature of New York, objecting to its passage.

In the judgment of Governor, now Justice, Hughes, the power to levy an income tax ought assuredly to be given to the national government, but the amendment proposed by Congress labored under the fatal defect that it would empower the federal legislature, by taxing state and municipal bonds, to strike at the very vitals of state credit and state independence.1

Justice Hughes is so excellent a lawyer and so great a statesman that his opinion is not lightly to be controverted. But in our judgment it is erroneous in three respects:

(1) His interpretation of the legal force of the amendment. is incorrect.

(2) Even were his legal interpretation correct, he fails to take account of economic facts which would prevent the consequences which he fears.

(3) Even were his view correct, that the constitutional amendment would operate to change the law in the direction indicated, there are valid reasons why the law should be so changed and the amendment prevail.

Let us take up each of these points in order.

1 Mr. McCall, of Massachusetts, in Congressional Record, vol. 44, part iv,

P. 4391.

2 Op. cit., p. 4121.

8 Op. cit., p. 4440.

4 Special Message from the Governor submitting to the Legislature a Certified Copy of a Resolution of Congress entitled, “ Joint Resolution proposing an Amendment to the Constitution of the United States." Albany, 1910.

§ 2. The Meaning of the Amendment

A long series of decisions has established the doctrine that there are limitations implied as well as expressed upon the power of taxation, both of the federal and of the state governments. In the case of McCulloch vs. Maryland,1 decided in 1819, it was held that a state tax on the Bank of the United States was unconstitutional. Chief Justice Marshall, in this case, stated: "That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create; that there is a plain repugnance in conferring on one government a power to control the constitutional measures of another, which other, with respect to those very measures, is declared to be supreme over that which exerts the control, are propositions not to be denied. . . The states have no power, by taxation or otherwise, to retard, impede, burthen, or in any manner control, the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the general government."

A few years later, in 1824, the same proposition was advanced in the case of Osborn vs. United States Bank.2 The next step was taken in 1829, when, in the case of Weston vs. Charleston,3 a local tax on federal bonds was declared unconstitutional. The court said: "The tax on government stock is a tax on the contract, a tax on the power to borrow money, on the credit of the United States, and consequently repugnant to the Constitution. . . . The right to tax the contract to any extent, when made, must operate upon the power to borrow before it is exercised and have a sensible influence on the contract. The extent of this influence de

pends upon the will of a distinct government. To any extent, however inconsiderable, it is a burthen on the operations of government." Again, in 1842, in the case of Dobbins vs. Commissioners of Erie County, it was held that a local tax

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