Princeton University - Nassau Herald Yearbook (Princeton, NJ)

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The N assau H erald the income tax seems fair theoretically, in practice, it never distributes the burden of taxation equallyg Q25 the income tax is not productive, Cost of collection and opportunity for evasion are so great that the actual revenue becomes insig- nificant. Virginia with a State tax of 32,000,000 was able to raise only 350,000 from an income tax. South Carolina with a State tax of 31,000,000 could raise only 355,000 All author- ities agree that the income tax among its States has been and is impracticable. That the income tax is impracticable is proved in the second place by the experience of the Federal Government. The Federal Government levied an income tax from 1862 to 1872. During the war while the Government could appeal directly to the patriotism of the people, the tax did yield considerable revenueg but as soon as the war ended, the imposition of the income tax, with its evasion and with its perjury, became one of the most disgraceful chapters in our financial history. In 1872, with a population of 39 millions, only 73,000 people re- turned incomes for taxation. Thus a tax which was a mod- erate success as a war measure became absolutely imprac- ticable as a peace measure. Congress realized this and thus wisely abolished the income tax in 1872. That the income tax is impracticable is proved in the third place by the experience of England. England's greatest Statesmen and economists have expressed the disapproval of this method of taxation. john Stuart Mill condemns the tax because a fair and just administration is absolutely impossible. Disraeli says that the odious features of this tax can not by any means be removed or modified . Gladstone said: I believe that the income tax does more than anything else to demoralize the people. The reasons for these criticisms are manifold. An income tax is an extremely complicated and expensive Way of raising revenue. The average cost in England is 827 of the amount collectedg 25? of all incomes are never reached by the tax collector 5 5029 of the tax must be collected by self-assessment. But self-assessment invariably means evasion. The reason that England tolerates the income 20

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Class of 1876 Memorial Prize Debate WINNING SPEECH ' BY JESSE HERRMAN N IQIO QUESTION: Resolved, That it would be expedient for the Federal Government to impose an income tax. i CNegative side upheldj. The gentlemen on the affirmative demand the introduction of a new method of taxation on the ground of expediency. Any new system of taxation to be expedient must be tested CID by Canon of practice, and Czj by the Canon of justice. These twotests must be rigorously enforced except in case of extreme emergency. In opposing the position of my opponents I shall demonstrate two propositions that an income tax should not be imposed Q15 because it is impracticable and C21 because it is unjust. That the income tax is impracticable is proven QU by the experience of the several States. The history of the income tax among the several states is a story of failure and dis- appointment. Since 1840, sixteen States have faithfully tried this method of taxation. They have had a percentage tax and a progressive taxg they have had collection by the Local government, and collection by State officialsg they have tried self assessment, and they have tried stoppage at the source. What is the result? Thirteen out of the sixteen States have entirely abolished the income tax. Forty tax commissions have thoroughly investigated our system of taxation. Only one out of forty has reported favorably on the income tax. Massachusetts, which has had an income tax the longest, has recently taken steps to abolish it. The substance of the adverse reports is this: CID although 19

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Class of I8'f6 Debate tax with all its bad features is because her policy of free trade makes such a tax a necessity. Our first conclusio-n then is this: The income tax fails when it is tested by the practical experience of England, by the practical experience of the United States and by the practical experiences of the several States. Our second objection to the income tax is that it is unjust: CID because it can not distinguish between income from sala- ries and income from investment. The Hon. David McGreger Means in his recent book The Methods of Taxation points out that Parliament has struggled, in vain, for two generations to adjust their tax to these two kinds of incomes, and because England has failed, he maintains that the income tax in England is fundamentally unjust in practice. The professor and laborer have a salary incomeg both must lay aside money as an assurance against the future when their earning power will cease. But the holder of stocks and bonds has an invested income as long as he lives. He has no need to save 5 no need to protect himself against future loss, But the income tax demands the same revenue from both parties. This is only one of many examples which goes to prove that income, per se, is not a fair criterion of men's ability to pay taxes and thus when it is made the basis of taxation it inevitably works injustice. My second reason for maintaining that an income tax is unjust is because it must depend in a large degree upon self- assessment. There are two possible ways of collecting an income tax. The first method is Stoppage at the source . Wherever the source of incomes can be definitely located, as in the case of bonds and mortgages, the Government collects the tax before the income is received. About one half of the English income tax it thus collected. By this method the full income is always taxed. But the other half must be collected by self-assessment which spells evasion. The Board of Internal revenue reports that where self-assessment is in vogue only one third of the actual income is returned for taxation. The significance of these facts is this: one half of 21