Princeton University - Nassau Herald Yearbook (Princeton, NJ)

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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

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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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The Nassau H erald the tax payers in England, where stoppage at the source is used, and thus the full income taxed, pay three times as many taxes as the other half who can only be reached by self-assessment. Is it any Wonder that many economists call this the most unjust of all taxes? In our own country With our great area, our vast farming interests, and diversity of industries, these evils would be greatly increased. To sum up: I maintain that an income tax is not expedient in our country in the the irst place because it is impracticable as proved QU by the experience of England, Qzj by the experience of the United States and fgj by the experiences of the several States, in the second place because it is unjust as is provided by the fact QU that it does not distinguish be- tween income from salaries and income from investment, and Qzj that it must depend in a large degree upon self- as- sessment, which always means evasion and injustice. 22