We have already seen how the poll tax in one instance developed into the income tax. That tax will now be studied more closely.

While it is true that, since the abolition of the federal tax, the income tax has little more than a theoretical interest for American readers, yet inasmuch as the hopes of reformers all centre in it, and inasmuch as it may any day, again, become a live question, it is well to give the theory of the tax some consideration here. While the general, or special, property taxes rest either on the benefit theory or on the faculty theory of taxation, income taxes are better defended from the standpoint of the faculty theory. It is easier to make it clear that income measures faculty, than it is to show how income can measure benefit. To be sure, it has been claimed with some plausibility that income is a sure indication of the benefit enjoyed under the government. But that proposition requires more argument and explanation than does the simple statement that a citizen is able to pay more or less because he has a greater or a smaller income.

Besides this advantage of easier justification, the income tax has in common with all personal taxes another recommendation. It levies directly on the tax-payer. The nation's income from taxation is derivative. As such it is abstracted from the annual increment of wealth of the citizens. Any taxationwhich is actually paid out of capital or property is ruinous. Property taxes as we have seen are, theoretically, paid from the revenue earned by the property or out of other income of the owner, the property being at best but the indication of faculty or of benefit. But the income tax finds the indication of faculty in the source of the tax. There is a certain directness about this identification of base and source which theoretically, at least, is a strong recommendation of this form of tax.

From the standpoint of the faculty theory no general property tax, and no system of special property taxes which has not, incorporated in it, a tax on wages, salaries, profits, and the like, can be called equal. Many persons enjoying comparatively little property live in luxury and ease from their personal gains, while many others possessing comparatively large property may be from time to time in serious straits. For example, to be "land poor" is to be poor indeed. Large property does not always imply ability to pay taxes, and the absence of property does not always imply absence of ability.

There has been a feeling in the United States, not always clearly expressed, yet strong enough to influence legislation, that the earnings of personal exertion, professional fees, and the like are not good subjects for taxation. This is the result of an extreme laissez-faire view, which decries every sort of interference with individual freedom. Every tax is seen or felt to have a repressive tendency, which is sometimes supposed to be one of the main objects in assessing taxes.1 It is feared, then, that to tax the earnings of men would discourage exertion, would discourage industry. That this is a mistaken view of the nature of taxation, will, in the light of our whole discussion, be evident from the mere statement. A general tax on all income would not discourage income getting, but might even act as a stimulus thereto, more income being required to meet the tax and the same expenses as before. It may be true that this form of income represents less faculty than income from property, because more precarious than the latter, which furthermore leaves the owner free to engage in the getting of other income. But the entire exemption of personal earnings cannot be justified.

1 A liquor license in a certain western town cost $100. A tax of $100 was put upon banks. The bankers held up their hands in horror: "The people think the banks are as undesirable as the saloons ! "