Many authorities have recognized the theoretical justice of the income tax, yet have been skeptical of its use because of practical difficulties which arise. John Stuart Mill considered it, in principle, the most just of all forms of taxation, yet in effect it was more unjust than many which appeared to be more objectionable. He considered that one of the greatest objections was that it fell most heavily upon the conscientious, and should be used only in great emergencies.

Exemptions. - Many attempts have been made to eliminate the practical difficulties through the method of levying the tax. The general use of an exemption is for securing a more nearly equal sacrifice. The size of the exemption varies greatly in different countries, with no particular reason for the amount which has been chosen. Objection has been made to the granting of any exemption on the ground that every citizen possesses some ability to pay to the state. This objection might apply to large exemptions, but loses its force when the exemption is not more than the minimum of subsistence. To allow at least the minimum of subsistence to be free from tax burdens, on the other hand, seems more logical. To encroach upon this will mean either a retrenchment of the individual's expenditure, to his detriment, or that the state must furnish aid in some form of charity. Neither of these conditions is a desirable result from a fiscal system. When the cost of assessment and collection is considered, moreover, the amount received from small incomes is an expensive form of revenue.

Graduation. - Some form of graduation is generally used in levying income taxes, yet in this also there is no uniformity in the various countries. The arguments for progressive rates for income taxes are the same as those advanced for progressive taxes under the discussion of that subject.1 The application of progressive rates to the taxation of incomes conforms to the faculty basis for measuring taxes. While the intangible utility of incomes cannot be measured with any degree of accuracy, yet there is no doubt that the law of diminishing utility applies to the acquisition of income. As successive units are added, the importance of each unit becomes less than the preceding one. In order to impose the same degree of burden upon incomes of various amounts, more than a proportionate sum must be taken as the size increases.

1 See p. 110.

To formulate a scale of progression which would exactly-secure equality of sacrifice for all individuals would, of course, be impossible. Human natures and desires are too diverse for this, yet greater justice would be secured by an attempt at the ideal than if strictly proportionate rates were used. In most cases, at least, proportionate taxes place a lighter burden upon the richer classes than upon the poorer, and are less felt by those who have a wide margin above the minimum of subsistence than by those who have only a small surplus. One of the greatest justifications, then, for progressive rates in the use of income taxes is to equalize the burden upon different classes of incomes.

The advocate of proportional taxation, moreover, should have no objection to progressive income tax rates, but rather should encourage them. Many taxes, it has been indicated, fall more heavily upon the poorer classes than upon the richer. This is true of many of the indirect taxes upon commodities of consumption, and also of the general property tax. To tax the larger incomes at a higher rate than the smaller simply tends to counterbalance the regressivity of other taxes and to secure for the system as a whole a proportionate burden.

In order to avoid the objection of ultimate confiscation through the use of progressive rates, some form of degression is used. There is no uniformity of method, however, in the various countries. In England a progressive rate is used up to a certain amount, after which the rate is proportionate. In the Prussian system the amount taken from each grade of income is a lump sum rather than a percentage. The amount increases with each grade, but the tax becomes regressive within the grade. Sometimes, as in the United States, a normal proportionate tax is levied, while a progressive surtax is added. The degressivity of the tax is also affected by the amount of exemption which is allowed by the different countries.