great English-speaking nations is, therefore, not premature. Indeed, it is badly needed, for surprisingly little study has been given by the legislators of either country to the income tax laws of the other. In many respects the two laws have developed along quite different lines. Among other things, the conception of income differs; the factors which make persons liable to tax vary; the systems of administration are about as unlike as they could possibly be. The differences in the two laws have, naturally, been of more interest to me, and they are treated at greater length, than are those features of the laws which are similar. A comparative description of the two schemes of income tax is, in itself, valuable, but, when they differ, I have attempted to reach conclusions as to the relative merits of each, always keeping in mind that what may be suitable or successful in one country will not necessarily be so in the other. I have not attempted to write a text-book, and the reader may in some cases fail to find an exposition of some particular feature in which he is interested. I can only refer such readers to the standard text-books on the income tax in each country. Nevertheless, in the interests of accuracy and completeness, it has been necessary to deal with most of the important features of the two laws, and I am hopeful that the book will leave the reader with a fairly complete understanding of the two income tax systems, whether he agrees with my conclusions or not. I am greatly indebted to Dr. Hugh Dalton, M.P., for his unfailing interest and for many valuable suggestions and helpful criticisms. I should like also to acknowledge the invaluable assistance given me by my wife, Margaret H. Spaulding, at every stage of the preparation of the book. June, 1926. H. B. S. The Income Tax in Great Britain and the United States CHAPTER I INCOME TAX LEGISLATION-THE INCOME TAX STATUTES BEFORE proceeding to a discussion of the subject-matter of the income tax laws of Great Britain and the United States, it will be instructive to observe how income tax legislation is initiated and carried through the legislatures of each country. A comparison of the two schemes of income tax also involves some consideration of the history, form and arrangement of the statutes in which the laws are embodied. Great Britain. In Great Britain the income tax is imposed annually. This does not mean, however, that a complete income tax statute is enacted each year. The annual Finance Act merely states the rates of income tax and super-tax which will be effective for the ensuing year, and makes any desired amendments to the income tax law as it already stands in existing statutes. The Budget is introduced into the House of Commons by the Chancellor of the Exchequer in April of each year, and contains a statement of the estimated expenses of government for the ensuing fiscal year and the measures proposed for raising the required revenue. For these proposals the entire Cabinet is responsible, and, indeed, the Government alone can introduce bills proposing the imposition of taxes. The House of Commons, sitting as a whole as a Committee of Ways and Means, debates the Budget proposals in detail, 9 and these proposals, with amendments arising out of the debates, are finally embodied in the annual Finance Act. The House of Lords has now practically no voice at all in financial legislation. In short, all income tax legislation emanates from the Cabinet, and particularly from the Chancellor of the Exchequer. There exists no parliamentary committee to share his work or his responsibility. Under such circumstances it is natural that he should rely very largely on advice and suggestions from the Board of Inland Revenue, which has had so much experience with the administration of the income tax. In addition to the Board of Inland Revenue, the Chancellor has two sources of guidance. Public opinion as to certain features of the income tax sometimes results in deputations which urge on the Chancellor particular amendments to the law. These deputations usually voice the opinion of a particular industry or class of taxpayers, and their recommendations must, therefore, be studied with caution and with a view to their effect on other classes of taxpayers. More valuable than the recommendations of such deputations are the findings of Committees or Commissions occasionally appointed by Parliament to investigate particular features of the income tax with a view to suggesting improvements. Thus, in 1851, a Select Committee was appointed to consider "the present Mode of Assessing and Collecting the Income and Property Tax, and whether any other Mode of Levying the same, so as to render the Tax more equitable, can be adopted." In 1861 another Select Committee was appointed with the same terms of reference as that of 1851. The next Committee, appointed in 1904, was instructed "To inquire into and report whether it is desirable to effect any alteration in the system of the Income Tax as at present prescribed and administered under the following heads : "(a) The prevention of fraud and evasion; (b) The treatment of income derived from copyrights, patent rights and terminable annuities; "(c) The allowances made in respect of the depreciation of assets charged to capital account; |