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Rh The Congress shall have 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 development of the Federal income tax in the Acts of Aug. 5 1909, Oct. 3 1913, Sept. 8 1916, Oct. 3 1917, and Feb. 24 1919, is suggested statistically in the appended tabular statement.

The most important characteristic of the Federal income tax is its striking productivity, the elasticity of which is illustrated by the increase of the Federal taxes based on income from $345,191,844 for 1916 to $2,921,583,203 for 1917 and to $4,286,486,257 for 1918. These enormous sums (now collected from taxpayers in four quarterly instalments each year) have been raised without causing bankruptcy or widespread distress to taxpayers. As appears in the table, the personal exemptions granted by the Federal law are high compared with the similar exemptions allowed in other countries, and only a small proportion of the population is directly affected by the tax. A large proportion of the tax is collected in the industrial or urban states, and is thus marked by some unfortunate class and sectional characteristics. Compared with the similar taxes of other countries, the rates on small and moderate incomes are low: while the rates on the larger incomes are comparatively high, probably the highest collected in any important country.

From the technical standpoint, the striking characteristics of the Federal tax are: its taxation of gains from the occasional sale of capital assets (the constitutionality of which was affirmed March 28 1921 by the U. S. Supreme Court in Merchants' Loan and Trust Co. v. Smietanka) its failure, largely because of constitutional limitations, to reach interest on municipal bonds and other tax-free securities; the relatively small and decreasing use of “stoppage-at-source” (whereby the normal tax is withheld and paid direct to the Government by payers out of the payments due to corresponding payees); the full credit accorded for income and profits taxes paid to any foreign country on income derived from sources therein; the complexity of the law arising largely from the “cushions” or relief provisions (such as the deduction for amortization and the allowance for depletion on the basis of discovery value in the case of mines and oil wells discovered by the taxpayer) designed to protect the taxpayer against hardship; the great centralization in the administration of the tax; and the delay in the audit and inspection of the larger and more important returns due principally to the complexity of the law and the centralization of the administration. The structure of the tax creates some difficulties. Individuals pay a “split-normal” tax of 4 and 8% (see table) and surtaxes rising from 1 to 65%, while corporations pay 10% (on income in excess of the specific exemption of $2,000), and excess profits tax. This plan is unsatisfactory and the excess profits tax, it was believed, would be repealed at the close of 1921. The other principal defects of the tax the excessive rates of surtax; the demoralizing influence of tax-exempt income; the complexity of the tax; the delay in audit; and the over-centralization of administration—were generally acknowledged even by the friends of the tax, and legislative efforts to correct these failings were (1921) being made.

In the states, the adoption of income taxes was hastened by the unsatisfactory operation of the personal property tax, particularly on intangible personal property, and the so-called corporation franchise taxes. The income tax is being used (1921) to replace these taxes. The newer state income taxes are generally administered by state or central authority. There is an increasing tendency to compute the tax on the basis of the Federal return, and an effort is made by apportionment devices to exempt, in whole or in part, business or corporation income derived from property located and business transacted without the state. Jurisdictional questions and multiple taxation thus constitute fundamental problems. The Wisconsin tax is progressive on both individuals and corporations, rising (with surtaxes for soldiers' and educational bonus) to 13.2% on individual incomes in excess of $12,000 and on corporation incomes in excess of $7,000. The Massachusetts tax varies in rate for different classes of income, being 1½% on annuities and income from salaries and trade or business, 3% on the excess of gains over losses sustained from the purchase and sale of securities and intangible personal property, and 6½% on interest and dividends. The corporation tax in Massachusetts is at the rate of 2½%. In New York the personal