(d) The system of computing profits assessable under Schedule D on the average of the profits realized

in the three years preceding the year of assessment; "(e) The rules and regulations governing the recovery by taxpayers of over-payments of Income Tax;

"Whether Co-operative Societies enjoy under the present law any undue exemption from liability to Income Tax."

In 1906 a Select Committee was appointed to inquire and report upon the practicability of graduating the Income Tax, and of differentiating, for the purpose of the tax, between permanent and precarious incomes." A "Royal Commission on the Income Tax " was appointed in 1919 with the following terms of reference: “To inquire into the Income Tax (including Super-tax) of the United Kingdom in all its aspects, including the scope, rates and incidence of the tax; allowances and reliefs; administration, assessment, appeal and collection; and prevention of evasion; and to report what alterations of law and practice are necessary or desirable, and what effect they would have on rates of tax if it were necessary to maintain the total yield." This last Commission, consisting of twenty-five eminent and well-qualified members, made an exhaustive study of the entire British income tax. They held fifty sittings and examined 187 witnesses, including twenty-one official witnesses. The Report of the Royal Commission, published with the minutes of evidence, constitutes perhaps the best source of information as to the British income tax, and the Report itself contains numerous suggestions for the improvement of the law. It has, of course, no binding effect, and the great majority of its suggestions have not yet been adopted. The adoption of its principal recommendations would involve considerable revision of the law, and would in many important particulars result in a complete change of the system now in use.

Until 1918 the British income tax law was contained in the Act of 1842 and a great number of amending Acts. In 1918 the law of income tax was collected into one statute the Income Tax Act, 1918. Each year's Finance Act adds amendments, so that already the income tax law is con

tained in eight different statutes. Not only is it necessary to consult a number of statutes, but the Income Tax Act, 1918, was little more than a consolidation of the previous Acts it was in no sense a codification of the law. This is most unfortunate, for never was so important a law in such need of codification. It lacks logical arrangement, many of its provisions are obscure, and in many cases the practice under the Act is the exact opposite of the rules laid down therein. The sections of the law which actually define taxable income, and provide the rules under which various kinds of income are to be assessed, are not, properly speaking, in the Act at all. They are collected in schedules and placed in a sort of appendix to the Act. The reason for this arrangement is that the proper place for a schedule is at the end of an Act. It seems almost unbelievable that in over a hundred years no one was able to devise a plan which would permit the principal part of the income tax law to be placed in the Act itself. It remained for the 1920 Royal Commission to offer a solution by the suggestion that the word "Part" be substituted for the word "Schedule" in order that the subject-matter of the present schedules might with propriety be placed in its fitting position in the body of the Act. It must be a difficult matter for anyone who is obliged frequently to consult the British income tax statutes to observe restraint in his comments. As Lord Sumner has said: "It is a most wholesome rule that in taxing the subject the Crown must show that clear powers to tax were given by the Legislature. Applied to income tax, however, this is an ironical proposition. Most of the operative clauses are unintelligible to those who have to pay the taxes, and in any case derive such clarity as they possess from the Judges who have interpreted them." 2

The United States.

The United States income tax is not usually imposed each year. Each Revenue Act imposes the tax "for each

Up to the present time, however, the suggestion of the Royal Commission had been ignored.

Brown v. National Provident Institution, [1921] 2 A.C., at p. 257.

taxable year," and the tax continues at the same rates until repealed or amended. The income tax law is one of the" Titles" of the Revenue Act, which is an Act containing all the revenue measures of the Federal Government. Since its inception in 1913 the income tax law has been completely re-enacted in 1916,1 1918, 1921, 1924, and 1926. Upon the enactment of each new income tax law the prior Acts become of historical interest only, except in so far as tax adjustments under the earlier Acts remain to be made.

It is provided by the Constitution that all bills for raising revenue shall originate in the House of Representatives, but that the Senate may propose or concur in amendments. The Senate has gradually extended its power of amendment until it now practically assumes the right of initiating revenue measures. It has gone so far as to take an insignificant House bill of a few lines, involving only minor changes in one of the tax laws, and to substitute an entirely new bill of over twenty pages revising all the existing revenue laws. In spite of the protests of the House, it was able to force the adoption of a considerable portion of its plan of revision.2

Revenue bills in the House are prepared by the Committee on Ways and Means, which contains a majority of members from the party with a majority in the House. When preparing a new revenue bill, this Committee frequently sits during the recess of Congress, and holds sessions at which representatives of various bodies of taxpayers are heard in support of their views as to desirable changes in the law. These hearings resemble those of the British 1920 Royal Commission on the Income Tax, and are similarly recorded and published. When the revenue bill has been prepared, it is reported to the House, where it is debated and finally passed after modification arising out of the debates. It is then sent to the Senate.

When the revenue bill reaches the Senate it is referred to the Committee on Finance, which has usually already prepared its own bill and has watched closely the debates

The Act of October 3, 1917, amended the 1916 law in many respects. In 1917 the income tax was imposed by the 1916 law and by the 1917 law, at separate and different rates.

See Beard, American Government and Politics, p. 301.

in the House. This Committee (like the House Committee on Ways and Means) sometimes conducts hearings during the recess. The Finance Committee makes amendments to the House bill, in some cases practically substituting a new bill. It is then reported to the Senate, where it is debated, usually in more detail and with more intelligent understanding of its provisions than in the House.

After the bill, with its amendments, has been passed by the Senate, it is returned to the House, which immediately votes not to concur in the Senate amendments and requests a conference. The chairman of the Committee on Ways and Means, with several other members, is appointed by the Speaker to represent the House, while the presiding officer of the Senate appoints the chairman of the Finance Committee, with some other members, to represent the Senate. The sessions of the Conference Committee invariably end in a compromise, some of the Senate's amendments being accepted and others rejected. The bill as reported from the Conference Committee is submitted to the House and passed without amendment. It is then sent to the Senate and forthwith accepted by that body. When it has been passed by the Senate it is sent to the President for his signature.

The enactment of an entirely new income tax statute every few years has great advantages. It keeps the law of income tax in one convenient statute; it permits of minor improvements in drafting without the necessity for a separate Act; and it frees the legislators from the inertia inevitable where an entirely new income tax Act occurs perhaps only once in a century. The result is that the United States income tax law is a modern, carefully drafted and logically arranged statute, whereas the British law is antiquated, ill-arranged and obscure and ambiguous in its provisions. It is unfortunate that the British law was not thoroughly revised and codified in 1918 when all the income

The Revenue Act of 1926 (Section 1203) establishes a Joint Committee on Internal Revenue Taxation, consisting of five members of the House · Ways and Means Committee and five members of the Senate Finance Committee. The duties of the Committee are to investigate and report on the operation and effect of all internal revenue taxes, and they are specially urged to investigate measures and methods for the simplification of the income tax.

tax statutes were consolidated. There is no possible excuse for any further delay in this most important work of codification. It is, of course, under modern conditions of business and finance, impossible to make any income tax law a simple matter, but certainly everything possible in that direction should be done. This must not be taken, however, as a plea for the enactment of a British income tax law in such detail as is found in the United States statute. In the United States the taxpayer is obliged to assess himself, and it is therefore necessary that the law be clear and detailed. In Great Britain much more responsibility and discretion are given to the administrative officers and less to taxpayers. Accordingly, the British law may remain fairly general in its terms and yet be regarded as satisfactory in this regard. But even within these limits there exists the most urgent necessity for clarification and systematic arrangement of the British law. This necessity was recognized by the 1920 Royal Commission, which strongly recommended that steps should be taken to prepare a bill containing the whole law on the subject in the most modern and approved form. The Commission urged a real codification so that the suggested new Act would embody not only the present statutory provisions, but all decisions of principle which have been laid down by the Courts. Clear definitions of taxable income and allowable expenditures were recommended and suggestions were made for improvements in form and arrangement. Finally, it was suggested that the schedules be reduced from five to three, and that income be re-classified under the three new schedules.1

Report of the 1920 Royal Commission, Cmd. 615, p. 89. See Chapter XVI for a discussion of the British Schedules.