Whether an income tax is a desirable supplement to the ordinary tax system of the United States in times of peace is a far-reaching question which will be discussed later. But surely no patriot can afford to object to conferring upon the United States a power which until recently it was always supposed to possess, and without which its prosperity — nay, even its very existence-might possibly be menaced. The pending constitutional amendment seeks to secure this result, and its adoption ought not to be impeded by arguments that place upon it an erroneous interpretation and conjure up dangers which a more careful economic analysis shows to be wholly non-existent. The pending constitutional amendment, even though it does not go so far as some might think wise, is not only legally defensible and politically innocuous, but it is, above all, economically sound. It is therefore from every point of view eminently desirable. CONCLUSION A PRACTICABLE PROGRAMME Now that we have studied the historical development of the income tax at home and abroad and have called attention to some of the general considerations which apply to the topic, it remains to draw the conclusion as to the actual problem confronting the American people. This problem is really three-fold. In the first place, we must decide whether, in the light of existing conditions, an income tax is in itself desirable as an adjunct to our tax system. In the second place, assuming that the answer is affirmative, the next query is whether the income tax should be a state or a federal tax, or, perchance, a combination of the two; and in the third place, the final and most important question is what kind of an income tax should we have and how should the administrative features be elaborated in order to insure success. § 1. Is an Income Tax Desirable? In approaching the question as to the desirability of an income tax under actual conditions, we must carefully consider the American fiscal system as a whole. Partly as a result of constitutional restrictions, but chiefly as a consequence of a natural evolution, there has been in the main a separation between the sources of state and of national revenue. The commonwealths started out with a general property tax, or a land tax which soon developed into a general property tax. The national government began with a system of import duties, which were exclusively reserved to it. For a long time these two sources of revenue sufficed and developed independently of each other. During almost a decade, at the close of the eighteenth century, the tariff was supple mented by an internal revenue system; but this was abolished in 1802, and was revived for only a few years during the period of the war of 1812. With the advent of the Civil War, however, the internal revenue became, and has since remained, an integral part of the national fiscal system. For the most part the internal revenue has been derived from indirect taxes or excises. The experiment with the so-called direct tax levied on real estate, which worked fairly well in 1798, was less successful in 1813, and aroused such complaints during the Civil War that the tax was subsequently repaid. A century ago, amid primitive conditions, real estate values and population were fairly proportional to each other; in modern times, under the influence of industrial changes, this proportion has been so greatly altered that the constitutional method of apportioning a direct tax would involve an enormously greater burden upon the landowner of an agricultural state like Mississippi than upon the owner of a precisely similar amount of land in an industrial state like Massachusetts. The direct real estate tax has thus lost its original equality, and is as a consequence not likely to be repeated. The only other case where the federal government entered upon what has come to be considered the reserved fiscal domain of the states, was that of the inheritance tax, levied during the Civil War and again during the Spanish war. In the main, then, it may be said that the national government has chosen sources of revenue which are not employed by the state governments. On the other hand, the states have almost uniformly refrained from trenching on the field of excises or internal revenue occupied by the federal government. In the case of excises there are exceedingly few instances of commonwealth activity, as, for instance, in Delaware and Kentucky. So far as license taxes are concerned, we find a somewhat more widespread activity on the part of the commonwealths, especially in the southern states. Such licenses, however, have been gradually abandoned by the federal government, and have come to be reserved only for special exigencies. The |