It was too much to hope that the new tax law would meet with unmitigated success. A heavy burden was placed upon the internal revenue department of the treasury in interpreting ambiguous phraseology, and in rendering opinions and decisions of various kinds. The degree of success which the law attained really depended upon these officials. While interpretation was all that was necessary in some instances, some conditions developed which demanded a change in the law. The first of the nine titles in the Revenue Act of 1916 consists of the remodeled income tax law.

Rates Under Act of 1916. - The perceptible changes in the 1916 law do not indicate the amount of consideration which was given to this phase of the revenue. While many changes were made in phraseology, the essential features remain very much the same. The most conspicuous change is in the normal rate and in the additional rate. The normal rate is doubled, while the schedule of additional rates under the new law is as follows:

1%

on net

income over

$ 20,000

not exceeding

$ 40,000

2%

" "

" "

40,000

" "

60,000

3%

" "

" "

60,000

" "

80,000

4%

" "

" "

80,000

" "

100,000

5%

" "

" "

100,000

" "

150,000

6%

" "

" "

150,000

" "

200,000

7%

" "

" "

200,000

" "

350,000

8%

on net

income over

$ 250,000

not exceeding

$ 300,000

9%

" "

" "

300,000

" "

500,000

10%

" "

" "

500,000

" "

1,000,000

11%

" "

" "

1,000,000

" "

1,500,000

12%

" "

" "

1,500,000

" "

2,000,000

13%

" "

" "

2,000,000

   

Attempted Modifications. - In the 1916 revision much pressure was brought to have the exemption lowered to $1,000. This was unsuccessful, however, because of the administrative difficulties already involved and because of the great increase in these burdens which would ensue from the reduction. Pressure had been brought, too, to abolish the collection at source feature, because of the burden placed upon the companies who were compelled to pay the tax. Some desired that this be changed to information at the source, but this was not done. Other changes which many desired, but which were not made, were the elimination of much unjust double taxation because of the treatment of foreigners, and the recognition of some differentiation in incomes.

Important additions were made to this law by the War Revenue Acts of 1917 and 1919. These will be outlined in the chapter on Emergency Financiering.1 The law of 1916 represents our development of income taxes under normal conditions. Although a recent addition to the Federal revenue system, income taxes have more than proved their worth. In the use of a source of revenue as new as the income tax, a large amount of evasion has been practiced, but this difficulty will decrease as the system becomes better understood and the administrative machinery becomes more perfect. The amount of revenue derived from this source has been considerable, and income taxes are destined to continue to occupy an important place in our Federal fiscal system.