As an example of such a tax, not, perhaps, ideally perfect, but still laid down in accord with the general principles enunciated above, we will study somewhat in detail the Prussian income tax.1 In order to have in mind the main features of the development already outlined above, Chapter V., we quote from Mr. Hill the successive stages in the growth of personal taxation in Prussia :

" 1. A uniform poll tax, 1811.

" 2. A class tax, collecting somewhat more from the prosperous, and not less from the poor, 1820-1821.

" 3. To supplement the class tax, an income tax with comparatively few classes, a uniform rate, and a maximum limit, 1851.

" 4. Classification made finer, the maximum limit removed, and the class tax below made practically an income tax with a progressive rate, and the exemption of incomes up to 420 M., 1873.

"5. Exemption of incomes up to 900 M., reduction of the remaining rates of the class tax, and of the two lowest rates of the income tax, 1881-1883.

" 6. Principle of progression extended to all incomes under 100,000 M., incomes under 10,000 M. taxed less than before, and higher incomes more ; a declaration of income by the tax-payer required, and a finer classification adopted, 1891."

1 For history see Hill, Quarterly Journal of Economics, VI., 207 ; Wagner, " Die Reform der directen Staatsbesteuerung in Preussen im Jahre 1891," Schanz' Finanz Archiv., VIII. Jahrgang, II. Band. A full statement of the law is there appended.

To make the new tax still more clear we quote the rates from the law itself :

TARIFF OF RATES.

Incomes.

Bate.

from

to (inclusive)

M.

M.

M.

900

1,050

6

1,050

1,200

9

1,200

1,350

12

1,350

1,500

16

1,500

1,650

21

1,650

1,800

26

1,800

2,100

31

2,100

2,400

36

2,400

2,700

44

2,700

3,000

52

3,000

3,300

60

3,300

3,600

70

3,600

3,900

80

3,900

4,200

92

4,200

4,500

104

4,500

5,000

118

5,000

5,500

132

5,500

6,000

146

6,000

6,500

160

6,500

7,000

176

7,000

7,500

192

7,500

8,000

212

8,000

8,500

232

8,500

9,000

252

9,000

9,500

276

9,500

10,500

300

The rate increases

from

to i

In stages of

by

M.

M.

M.

M.

10,500

30,500

1,000

30

30,500

32,000

1,500

60

32,000

78,000

2,000

80

78,000

100,000

2,000

100

In the case of incomes from 100,000 M. to 105,000 M. the tax is 4000 M. And from that point on the proportional rate of 4 per cent is assessed upon the lower limits of stages of 5000 M. each.

This rate is progressive from about two thirds of one per cent at 900 M. to 3 per cent at 10,000 M. Then the rate is nearly proportional at 3 per cent up to 30,000 M. Then progressive again, until at 100,000 M. 4 per cent is reached, after which it is proportional again. Each tax-payer having an income of over 3000 M. is required to " declare " it. He has to fill out a blank calling for a statement of income from each of four sources : (1) from capital invested, interest and dividends; (2) from landed property and houses, including all crops, whether consumed in the house or not, but deducting the cost of cultivation ; (3) from trade, industry, or mining, deducting the cost of maintenance ; (4) from any employment, wages, salaries, fees, and including pensions and every source of income not covered by (1) (2) and (3). Deductions are allowed (1) for interest on debts, except that on business debts ; (2) for permanent legal burdens (example, maintenance of reserves), (3) contributions to sick funds ; (4) life-insurance premiums. This division of the income into different parts is for the sake of accuracy of declaration, not for the sake of assessing different rates on the different kinds of income.

Persons with large dependent families or labouring under any special economic conditions seriously affecting their faculty are allowed an abatement of not more than three grades provided their incomes are not over 9500 M. Persons having less than 3000 M. deduct 50 M. for each child under fourteen years of age, and if there are three such children a reduction of one grade is made.

Corporations and stock companies pay the income tax on all dividends over 3.5 per cent. This makes double taxation of this income, which is regarded as particularly "capable." In other ways the attempt is made to tax funded income more heavily. The exemption of incomes below 900 M. ($225) and the lower rate for smaller incomes is justified on the ground that the consumption taxes already impose a burden on these persons.

The assessment of the tax is not perfect. It is said to be considerably better, however, than the assessment of property in America. Large incomes escape in part. It has, however, an advantage in that the evasion of the tax does not in Prussia as it does in America intensify existing differences and inequalities. Other parts of the system tend to offset the failure in this case.