Some definite understanding as to what the term income includes becomes necessary, since income taxes are assuming such an important place in fiscal systems. Webster defines an income as "that gain or recurrent benefit, usually measured in money, which proceeds from labor, business, or property; commercial revenue receipts of any kind, including wages or salaries, the proceeds of agriculture and commerce, the rent of houses, or the return on investments."

This definition suggests some of the current ideas which are held as to the meaning of income, but it does not indicate all the problems which arise when one seeks to determine the income which should be made the proper base for taxes. The popular conception of income is that of net income, yet the expression is used frequently to designate the larger category of gross income. A tax is sometimes levied upon net incomes, and sometimes upon gross incomes, and in the case of the levy of such a tax upon a corporation it is customary to refer to it as a gross or net income tax, because there is no uniformity as to which is used in the different states, or against various corporations.

Gross and Net Income. - The popular conception of income is that of the net return, and that this differs widely from gross income is at once apparent. In the case of salaries and wages, the total amount received is usually considered as the income, but this does not hold for productive enterprises. The income is usually considered as that which is left after expenses are deducted. In the case of manufacturers, merchants, or farmers, the total receipts might be large, while a deduction of expenses might leave comparatively little or nothing. Even a greater difference than this should be made, perhaps, in some cases. In manufacturing plants, for example, the expenditures for a particular year may not indicate all that should be deducted from the gross returns. Depreciation is in progress, and provision should be made to take care of both depreciated building and worn-out or obsolete machinery. From this conception an income might be considered as any amount over and above that sufficient to keep the capital investment intact. To determine this accurately, however, would be impossible in many cases.

Capital and Income. - Many attempts have been made to make a clear distinction between capital and income, yet for practical purposes most of the distinctions cannot be carried too far. Some point out that capital is a stock of wealth, while an income is a flow of wealth. The receipt of an inheritance, however, is scarcely to be classed as a part of an income. Some would go farther in modifying the income concept, and limit it to a somewhat regular flow of wealth, yet many of the returns from dealing on boards of trade and stock exchanges should be classed as income, although the flow is by no means regular.

Many attempts have been made by judicial minds to define income, capital, and property, but there has been no more uniformity in their concepts than in those which others have tried to formulate. Fiscal authorities, however, are more concerned about the concept of income, and the methods of levying upon it, which will most nearly conform to principles of justice in taxation.