Incomes have much to recommend them as sources of taxation. If any single tax were practicable, one upon incomes would doubtless most nearly meet the requirements of justice. Incomes represent a flow of wealth, a part of which can be given up in taxes more easily than can a part of property against which taxes may be levied. In cases of property taxes it is assumed that the tax is to be paid from income from the property, and that no impairment of capital will be necessary. The source of the tax upon property is sought in a separate field from that which measures ability, while the income tax is taken directly from that which is used as the basis for measuring the ability. That the latter will more nearly conform to the requirements of justice in every case is reasonably sure.

Many individuals with large incomes, and consequently able to meet tax burdens, may have comparatively little property. Large property holdings, on the other hand, do not always indicate that burdens can be shouldered with ease because of the unproductive state in which the property may be found.

The difficulties which have been encountered, however, in finding incomes, and in securing a proper classification according to taxpaying ability, have restricted the use of income taxes. It may be said, with some degree of accuracy, that three different methods have been used in attempting to secure the amount of income which shall be subject to taxation.

Estimates of Officials. - One plan for assessing incomes has been to give fiscal authorities the power of estimating the amount of incomes that shall be subject to taxes. The difficulties presented are at once apparent. Chances for variations occur according to the abilities or inclinations of the various officials. Some may be diligent and others negligent; some may be exacting, and others may be content with much less than a full assessment. The opportunity for favoritism immediately presents itself, along with the unpleasant inquiries into the business affairs of individuals. In fact, many of the undesirable features which accompany the valuation of property by local assessors are found in this method of ascertaining incomes.

Personal Declaration. - A second method, which has been extensively used in ascertaining incomes, is to have the recipient of the income make a personal declaration of the amount. The advantage of the plan of self-assess-ment lies in the minimizing of the duties of fiscal authorities and the absence of any inquisitorial processes. The ease of evasion, however, constitutes a serious difficulty with the use of this method. Inequalities arise when the honest recipients of incomes make full returns, while the less scrupulous either make no returns or falsify those which are made. Where a complex system exists, it is difficult, at times, for the uninitiated to make proper returns. To secure a semblance of uniformity, then, close official supervision becomes necessary, which involves many of the difficulties which have been indicated in the preceding paragraph.

Stoppage at Source. - In order to overcome the problems indicated above, some attempts have been made to reach incomes before they have been placed in the hands of the recipient. This is done either through assessment at source or collection at source. In the first case the amount of the income is ascertained before it reaches the recipient, but the tax must be paid by him; in the latter plan the tax is deducted before the payment of the income is made.

Obviously the principle of assessing or collecting at source cannot be applied to all incomes. It is comparatively easy to apply in the case of government salaries, of interest and dividend payments, and of other incomes of this nature, but cannot be used satisfactorily where an income consists of returns from the sale of merchandise, or farm products, or such items as physician's or attorney's fees. Where the source basis is used, then, it must be supplemented by some other plan to reach those incomes which cannot come under its application.

A serious objection to taxing incomes at their source arises in the difficulty of applying progressive rates. The income of a particular individual, for example, might be composed of items from a number of sources. The rate which would apply to each of these items when a progressive scale is in force would likely be less than would apply if the entire income were taken as the base.

If the tax, on the other hand, be levied upon the total of a dividend or interest payment, the rate would be higher than what would apply to the amount which reaches the individual recipients. With the use of collection at source, then, some readjustments must be made with the individuals in order that the progressive rates may have uniformity of application. Serious administrative problems often arise in attempting to make these adjustments. The burden imposed upon the agency that withholds the tax, moreover, may not be inconsiderable. This was one of the difficulties that was encountered in the attempt of the United States to use this device.

Information at Source. - Some attempts have been made to accomplish the same ends as collection at source, and yet avoid the difficulties, by substituting what is known as information at source. Under this plan the one paying the income does not withhold the tax, but informs the fiscal officials of how much income has been paid. The income tax of the United States can be used to illustrate these principles. Collection at source was provided to some extent by the first income tax law. By the law of 1916 anyone who paid to another an amount which was subject to the normal tax was required to deduct the tax and turn it over to the government. This was soon given up, and in the law of 1918 a plan of information at source was substituted. Anyone who makes a payment to another of an amount of or exceeding $1,000 in any year is required to make a statement of such payment to the fiscal authorities.

Other Considerations. - It is generally recognized that mere size of the income is not the only factor to be considered in calculating ability to pay. Many schedules have consequently been devised in some countries, with different rates for each, in the attempt to more nearly approximate justice. Such factors as the nature of the industry and its age are given consideration. These varied attempts to secure justice, with the consequent administrative problems, account for the variations which occur in the income tax systems of different countries. A brief consideration of the plans used by some of the more important countries will illustrate the attempts to make income taxes satisfactory.