The Great Events by Famous Historians

That decision, in all its absurdity, has stood ever since. Its consequences were to deny to the United States Government the right to tax incomes, to restrict it still further to customs duties as virtually its sole source of revenue, to deprive it of a power that might one day be vital to the safety of the Union, and to exhibit it in a condition of feebleness that was altogether incompatible with any rational conception of a sovereign State. It is true that the Supreme Court has changed not only its personnel, but its spirit, and its whole attitude toward questions of public policy, since 1895. It has more and more allowed the influence of the age and the necessities of the times and the clear demands of social and economic justice to moderate its decisions; and had the question of an income tax been brought before it any time in the last five years, it would probably have reversed its judgment of 1895. But President Taft was undoubtedly right when he urged, in 1909, that the risk of another adverse decision was too great to be run, and that the safer course was to proceed by way of an amendment to the Constitution.

The mere passing of the Income Tax amendment did not, however, establish an income tax. It merely authorized the government to do this at will. President Wilson's administration was prompt to take the matter up. The Democrats, in conjunction with their reduction of the tariff, needed a new source of revenue. So in October of 1913 the Income Tax law was passed. In theory an Income Tax is obviously the most just of all taxes. It summons each citizen to pay for the government in proportion to his wealth; and his wealth marks roughly the amount of government protection that he needs. In practise, however, the working out of an income tax is so complex that every grumbler can find in its intricacies some cause of complaint. The present tax is therefore described here by an expert statistician, Mr. Joseph A. Hill, the United States Government official at the head of the Division of Revision and Results of the Census Bureau in Washington.

Among the notable events of the year 1913, one of the most important in its influence upon the national finances and constitutional development of the United States is the adoption of an amendment to the Federal Constitution giving Congress the power "to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States and without regard to any census or enumeration." The mere fact that an amendment of any kind has been adopted is notable, this being the first occasion on which the Constitution had undergone any change since the period of the Civil War, and the first amendment adopted in peaceful and normal times since the early days of the Republic.

It is a little remarkable, although perhaps not altogether accidental, that the adoption of this amendment should coincide with the return to power of the political party whose attempt to levy an income tax in 1894 was frustrated by the decision of the Supreme Court in that year. Then as now an income tax was a component part of the program of fiscal and commercial reform to which that party was committed. This program included the reduction of protective tariff duties and the direct taxation of incomes. What the Democratic party failed to accomplish in 1894, it has had a free hand to do in 1913. Indeed, the national taxation of incomes might almost be regarded as a mandate of the people of the United States. At any rate, it was a foregone conclusion that the adoption of the constitutional amendment would be immediately followed by the enactment of an income-tax law.

The law instituting the income tax was approved October 31[?], together with the law revising the tariff, both measures being included in one comprehensive statute entitled "An Act to reduce tariff duties and to provide revenue for Government, and for other purposes." It is the object of the present article to give a general description of the income tax. This seems to be especially well worth while because the tax can not be readily understood from a mere perusal of the involved and sometimes obscure phraseology of the law itself. For the same reason, however, the task of interpretation is not easy or entirely safe. The law has certain novel features; and some of the questions of detail to which they give rise can not be answered until we have the official construction placed upon the language of the act by the executive branch of the government and possibly by the courts. At the same time, the main features of the tax become fairly evident to any one who makes a careful study of the provisions of the act, even though its application to specific cases may remain doubtful.