In their attempt to reach ability to pay taxes fiscal authorities often make differentiations in incomes which would not otherwise be made. A discussion of the uniformity of taxation clause, which is to be found in many state institutions, will be found in another place, but the courts have generally held that the provision does not prohibit the classification of property provided greater equality of assessment could be secured thereby. In other words, the contention has been that the constitutions were concerned about the equality of burden rather than equality of assessment. This principle has been carried to income assessments, and differentiations have been made.

Funded and Unfunded Income. - The distinction between a funded and an unfunded income, or between an unearned and earned income, was one of the first to be made. In the case of a funded income the income is separated from any personal efforts of the recipient, while in the case of an unfunded income it is dependent upon the exertions of the individual. It is the difference between $3,000 in interest or dividends or in rents from lands, and $3,000 paid as a salary for personal services.

It is evident that it is a greater burden to give up a part of the latter $3,000 than it would be to give the same proportion of the first $3,000. In the one case savings need not be considered, because the income is certain, whether the recipient works or not; in the other provision must be made for the future, when the income will cease because of the incapacity of the worker. While the justice of such a differentiation is at once apparent, it is evident that such distinctions cannot always be made with absolute precision. Incomes which appear to be derived exclusively from property may, upon investigation, be found to depend to a greater or less extent upon personal activities. A part of the rent which a landlord receives from a farm may arise because of his management of the methods of production, the choice of fertilizers, or the selection of seed. Dividends from stocks may exist because the recipient has exercised the utmost discretion in their purchase. Many incomes from capital investments, moreover, depend to a greater or less extent upon the efficiency of the management of the owner. It is quite evident, then, that many incomes are combinations of funded and unfunded parts, the separation of which would involve insurmountable difficulties.

Considerations of Justice. - Incomes of the same nature may vary in their ability to meet fiscal burdens. Some may have a large number of necessary and fixed charges against them, while others may have practically none. The amount of fixed charges, of course, makes a great difference in the amount which may be disposed of in any manner which may be decided upon. One man, with no dependents, may have an income of $5,000, against which there is no fixed charge, and he can use it for his enjoyment as he chooses. Another man with the same income, with a home to support, children to feed, clothe, and educate, and feeling the necessity of establishing a fund of savings to meet possible emergencies, may have very little left after these necessary charges are provided for,

Should the privilege be granted of deducting all necessary charges which arise against net incomes before taxes could be levied, the plan would doubtless be abused to such an extent that there would rarely be a net income left against which to impose taxes. The principle of deductions, however, is generally recognized by the fiscal authorities of most countries which use the income tax. A fixed amount is usually exempt from taxes, and stipulated deductions are allowed for each dependent. The attempts of various countries to use this principle will be noted in the discussion of their method of taxing incomes.

It is true in a number of cases, furthermore, that an individual receives an income from his property without its having taken the form of money. A farmer raises his own fruits and vegetables, dresses and cures his own meat, and frequently exchanges wheat which he has grown for flour at a near-by mill. He has received just as much enjoyment from these goods as the man who has received a money return, and has used it to secure the same utilities. A man who lives in his own house is getting a return from it just as much as the man who rents his house for a money income.

The impossibility of an accurate measurement of these incomes, which do not resolve themselves into a monetary form, is obvious. The principles of justice require that some account should be taken of such incomes in formulating a scheme of income taxes. The difficulty is at once encountered, however, of attempting to place a tangible value upon an intangible income.