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11. Necessity for Taxation. The foundation reason for public taxation is the general convenience. Certain things become essential for the public good, and it is, in any large group of people, a practical impossibility to raise the amount by toll or personal voluntary contributions, or even by general or unanimous consent. Hence arose the governmental policy of enforced taxation. The governing power decides what expense is necessary for the public welfare, and raises the required revenue by a levy or tax on all the people. The only alternative or substitute for it would be the method by which two or three persons contribute to the expense of some undertaking for their mutual benefit, and, as total equality could never be possible, this system in any nation cannot be feasible. Hence the expense is undertaken on the theory of the greatest good to the greatest number, and all are forced to contribute to it. “A sum or rate imposed by governmental authority for a public object or purpose.Pettibone v. Smith, 150 Pa. 118, 17 L. R. A. 423.

12. Income Tax Theory. There are two general theories of taxation, in one or the other of which all schemes of taxation are included. One is the cost to the Government of the benefits conferred upon the taxpayer, or, in other words, the taxpayer pays according to the protection afforded him, basing the amount on the actual cost to the Government. In this class comes the property tax, which each person pays according to the amount of property he owns. The other theory, under which comes the Income Tax, is that the taxpayer enjoys his benefits and opportunities by governmental protection, and therefore should pay according to his ability to pay. It is argued that a man who has income from the management of his property, as, for instance, a merchant, should not be liable for tax any more than the professional man whom by fees or tuition the merchant helps to support and whose income is not connected with care of property and its dangers and losses. As a further corollary to this, it is contended that the income from a professional man's labors should not be taxed as high as the income from his or another's vested property, and this principle is part of the Income Tax system of England where "earned” income has rights over “unearned” income. “The power of taxation is exercised upon the assumption of an equivalent rendered to the taxpayer in the protection of his person and property.” Transit Co. v. Kentucky, 199 U. S. 202. To this is now added the extension that the taxation may also consider the special circumstances by which one man's income is greater than another man’s, though the amount of their property may be the same. See (10 and (13.

13. First Taxes Were Income Taxes. When the wandering tribes, before the days of established governments and fixed boundaries, faced the necessity of compelling recalcitrants to assume their proportional parts of the general expense, taxation became necessary, and the first tax levied was a tax according to ability to pay, or an Income tax. It was the policy of the ancient kings to take from their subjects according to their ability to contribute, and on the same theory was based the biblical taking of a tenth of the income to the Church, which was then also the Government.

For the complete History of Income Tax Laws, refer to Foster's "Income Tax," 1915.

14. Income Taxes in Europe. In all European countries the Income Tax has afforded an irregular source of income as far back as history goes. To give the account of it would fill a volume with the simple record. In England, what might be called the modern tax was first begun in 1799. It was amended and modified often until 1853, when the act which is chapter 34 of the 16th and 17th Victorian Statutes may be said to have found a permanent basis. The present English act, 7 Edward VII., chapter 13 (August 9, 1907), taxes all incomes in excess of 150 pounds, or our approximate equivalent of $750. The present tax on the lowest income is in excess of a shilling on a pound, or approximately in our money of four cents on the dollar above $750, with additional taxes on larger incomes to the extent that of the highest incomes the English tax now takes about 40 per cent. In England the Income Tax affords the chief source of revenue. In France, Germany, and other nations it is also an important part of the revenue system.

15. State Income Taxation. From the early days of the Plymouth Colony to the present there have been numerous and sundry experiments with the Income Tax, in the Colonies first, and later in many of the States of the American Union. The tax, in one form or another, has existed in Massachusetts since 1646, but has produced but little revenue and is hardly worthy of the name of a tax. (Wilcox v. Middlesex County Commissioners, 103 Mass. 544.) In Virginia the tax has existed since 1898 and has produced more income there than any other State tax. The other States where the tax is now in force as a part of the State revenue laws are South Carolina, Wisconsin, Tennessee, North Carolina, and Oklahoma. It is also in effect in Hawaii and has been in the Philippine Islands, but was repealed there in 1904; and it has been tried in different forms and at various times in a number of other States. The new law applies, of course, to Hawaii and the Philippines. (St. M.) The constitutions of Virginia, North Carolina, Texas, California, and Tennessee expressly authorize a tax on incomes, though in Tennessee and North Caro lina it can only affect incomes from other sources than from property which is taxed. The Congress of the Confederate States of America (April 24, 1863) imposed an Income Tax on incomes exceeding $500, and at a rate increasing to 15 per cent, and this was later raised to 25 per cent. It applied to individuals, corporations, and joint stock companies.

56. Constitutional Provisions. The sections of the Constitution bearing upon the subject of the Income Tax, the combined meaning of which could never be settled until the enactment of the Sixteenth Amendment, are as follows:

9th Amendment: The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people. Spies v. Illinois, 123 U. S. 131; Jack v. Kansas, 199 U. S. 372.

10th Amendment: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. Curtin v. Benson, 22 U. S. 78; Interstate Commerce Com. v. Transit Co., 224 U. S. 194.

Article I, section 2: Representatives and direct taxes shall be apportioned among the several States which may be included within this Union, according to their respective numbers

Article I, section 8: The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States. Hooe v. United States, 218 U. S. 322; Flint v. Tracy Co., 220 U. S. 107.

Article I, section 9: No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken. Spreckles Co. v. McClain, 192 U. S. 397; South Carolina v. United States, 199 U. S. 437.

See (12 for 16th Amendment; f10 for Pollock case; (13 for Brushaber case, which in full, in Part V, construes all these provisions.

17. Direct and Indirect Taxation. Section 9 of Article I of the Constitution, which was one of the sections protecting the States on an equal basis, declares that no direct tax shall be laid unless in proportion to population, and section 2 of the same article has practically the same provision. Direct tax is tax directed at an individual or corporation, including capitation or "poll” tax, property taxes, taxes on business, incomes, etc. Indirect taxation is that imposed by what is commonly known as the tariff on goods imported into the country, and which is a tax on the goods, and not on a person. All internal revenue paid by individuals was indirect taxation until the passage of the Sixteenth Amendment. (Cooley on Taxation.) According to the Pollock case, hereinafter discussed, there is no tax outside of direct taxation on the one side, and “duties, imposts and excises” on the other. Under this definition Congress could only levy tariffs on imports, taxes on business, like tobacco and liquor manufactures; and all other taxes levied by Congress must be apportioned equally among the States. Hence a capitation tax or any other direct tax was an impossibility to Congress until the new amendment expressly conferred the power with regard to incomes. As to whether or not the income tax was a direct tax was the problem upon which the division came that forced the amendment.

"The distinction between direct and indirect taxation was weli understood by the framers of the Constitution and those who adopted it. Under the State systems of taxation all taxes on real estate or personal property or the rents or income thereof were regarded as direct taxes. The rules of apportionment and uniformity were adopted in view of that distinction and those systems." Chief Justice Fuller, Pollock v. Trust Co., 157 U. S. 573.

See Brushaber case, (13.

18. First National Laws. A Federal Income Tax was recommended by the Secretary of the Treasury in 1812, but not enacted. By act of August 5, 1861, a tax of 3 per centum was imposed on all incomes in excess of $800, but this was repealed by the act of July 1, 1862, which in turn laid the 3 per centum tax on all incomes between $600 and $10,000, and 5 per centum on the excess above $10,000. June 30, 1864, the rate was increased to 5 per centum between $600 and $5,000, 74 per centum between $5,000 and $10,000, and 10 per centum on all over $10,000. March 3, 1865, the rate above $5,000 was fixed at 10 per cent. March 2, 1867, the tax was fixed at 5 per cent above $1,000. The rate was cut in half July 14, 1870, and the entire law expired by limitation the following year. During all this time the constitutionality of the law was not questioned, though it may be assumed that this fact was partly due to the stress of war. For further history of income taxes in general, see Foster's "Income Tax." National Bank v. United States, 101 U. S. 1; Springer v. United States, 102 U. S. 586. See (13.

19. The Act of 1894. August 28, 1894, Congress again enacted an Income Tax, this levying a tax of 2 per centum on all incomes exceeding $4,000 a year. This act was amended as to time of filing returns, February 19, 1895. The first tax under the act was due to be paid on or before July 1,

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