The United States Federal government has made two attempts to establish an income tax. The first was a war measure, and was repealed as soon as the pressing necessity was removed. The second was, like the English income tax in 1842, a means to make up the estimated deficit resulting from the repeal of the protective duties. It failed to go into effect, however, as the Supreme Court could not be convinced of its constitutionality.

We shall consider the civil war tax first.1 The constitution provides :

" No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration hereinbefore directed to be taken." Article I., sec. 9.

Also, " Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three-fifths of all other Persons." Article I., sec. 2.

And, " . . .all Duties, Imposts, and Excises shall be uniform throughout the United States." Article I., sec. 8.

Early in the search for revenues to support the war a proposition was made for the apportionment of a tax of $30,000,000 in accordance with these provisions. But it was felt that populationwas no measure of the wealth of the differentStates, and that such an apportionment in 1861 would not result, as one in 1789 might have done, in imposing fairly equal burdens upon all the citizens. In lieu thereof, an income tax of 3 per cent on all incomes with an exemption of $800 was voted.

1 See Quarterly Journal of Economics, VIII., 4; also July, 1889.

In the case of Springer v. the United States, 102 U. S. 586, the Supreme Court decided that such a tax could be levied since it was not a direct tax within the meaning of the constitution.

The tax was to go into force a year later. But in 1862 it was amended, making the deduction $600 and the rate progressive. Incomes from $600-$10,000 (less $600) paid 3 per cent, all over that 5 per cent. In that form it went into effect. The great war tax law of June 30, 1864, made the rates as follows: 5 per cent on the excess over $600 up to $5,000; 7.5 per cent on the excess over $5,000 up to $10,000; and 10 per cent on the excess over $10,000. But again, before the law went into effect, the 7.5per cent rate was cut out and 10 per cent was collected from all incomes over $5,000. On all incomes derivable from the public funds1 the tax was stopped at the source. In 1867 the tax was reduced and the rate made 5 per cent with an exemption of $1000, and it remained thus until 1870. The income tax was, in a way, conjoined with one on corporations, banks, insurance companies, railroads, etc. The part of the individual's income taxed in this latter way was deducted before the income was assessed. No attempt, however, was made to make the rate of this tax progressive. It was first 3 per cent and later 5 per cent, and there were no exemptions. The assessment was made on the basis of a written declaration by the tax-payer, subject to correction by such information as the assessor could gather.

1 Except interest on bonds.

Generally the information upon which the tax was assessed was published in the newspapers. With the general removal of war taxes in 1870 the income tax fell away. The protective policy, which demanded the retention of the customs duties, rendered it possible to do without the revenue from this source.

The reduction of the customs duties in 1894, and the probability of a falling off in the revenues from this source led to the second income tax.1 The law for this tax, faultily drawn and more or less incorrect in principle, was declared unconstitutional by the Supreme Court in 1895 before it went into effect. The grounds for this decision, which reversed that in the case of Springer v. the United States, by which the other tax law had been tested, were that the tax was a direct tax and also not uniform inasmuch as all incomes below $4000 were exempt. This astonishing decision bespeaks more acquaintance on the part of the Court with economic literature than with the use of language at the time of the adoption of the constitution. As the decision now stands no income tax can be levied by the federal government without a constitutional amendment.

This income tax was to be for five years, commencing 1895. It was degressive, at 2 per cent, on all incomes in excess of $4000. It was levied upon 1 Quarterly Journal of Economics, IX., 1. "the gains, profits, and income" of all citizens and residents, " derived from any kind of property, rents, interest, dividends, or salaries, or from any profession, trade, employment, or vocation," " or from any other source whatever." Debts, and interest thereon, were exempt. The cost of stocking the farm and home consumption of products were not included. Accretions by gift or inheritance were to be counted as income. All persons having an income of over $3500 were required to declare their incomes. The individual stockholder in a corporation was allowed to deduct the income from his shares in making his return. Public corporations were exempt, but other corporations were not. State and local taxes except special assessments might be deducted. United States officials were taxed on their salaries. Returns were to be confidential.

It will easily be seen that this was a combination of an income tax with an inheritance and corporation tax. That it would necessarily have worked badly on that account is not clear. The rate was so low and the exemptions so liberal that pretty full returns might have been justly anticipated. The law, however, was loosely drawn, faulty in wording, and even contained clauses taken from the laws of the civil war tax having no possible meaning or bearing in the connection in which they were used. No attempt was made to adjust the tax to the existing burden of State and local taxes.

The taxation of income by the commonwealths of the United States is rare and entirely without leading principles. In Virginia alone there is a general income tax. It is supposed to be a tax of 10 per cent on all incomes over $1000. But the returns obtained in this commonwealth are insignificant because of the lax assessment. Partial income taxes, intended to supplement the personal property taxes and to cover the annual saving, exist in Massachusetts, Pennsylvania, Tennessee, and North Carolina.1

1 See Seligman, "Finance Statistics," Publications of The American Statistical Association, New Series, 8, December, 1889.