The use of income taxes as a part of the fiscal system of states is looked upon by many as an innovation. There has never been a time, however, when one or more of the states has not had the income tax in some form as a part of its fiscal machinery. Even in a number of the Colonies income was used as a partial measure for determining the proper base for assessment. Some of these Colonial taxes were continued long after the state governments were formed. Some states have used the tax rather consistently, while others have made only sporadic and half-hearted attempts to put it into force. The tax at present is used with a greater or less degree of success in twelve or more states.

Tax in Wisconsin. - The two states which have used the income tax most successfully in recent years are Wisconsin and Massachusetts. Wisconsin has used this form of revenue since 1911, while Massachusetts introduced it in 1916. The Wisconsin tax is assessed against individuals and corporations. The law explicitly states who shall be taxed, what deductions and exemptions shall be allowed, the rates that shall be imposed, and the method of administration. An exemption of $800 is allowed to an individual, $1,200 to husband and wife, and $200 for each dependent. The grades range by steps of $1,000 up to $12,000, and the rate is progressive from 1 per cent to 6 per cent. For corporations the grades range by steps of $1,000 to $7,000 and the rate is progressive from 2 to 6 per cent. Central administrative machinery is provided, which accounts in a measure for the success of the system.

The larger part of the Wisconsin income tax has been secured from corporations. The total amount collected the first year was about one and a half million dollars, while the collection in 1918 was nearly seven million dollars. The state tax commission characterized the system as follows:1

Results have been satisfactory. The increase in the tax ... is general throughout the state. The gradual and steady increase is doubtless due, first to the fact that. . . there is a steady growth in business from year to year, and second, because of the increased efficiency of administration. The conclusion from the foregoing is that a constant increase in revenue from income taxation may be confidently expected.

Tax in Massachusetts. - The Massachusetts law does not attempt to go as far as the Wisconsin plan, yet has been remarkably successful as a revenue producer, and as providing an elastic feature to the tax system. Corporate incomes are not included, and progression is not used. Large classes of incomes are exempt, so that little more than personal incomes are included under the provisions of the law. Incomes are classified, and are taxed at different rates. The amount collected in 1918 was over fourteen million dollars, more than one third of the amount collected by the Federal government from incomes in the state. This record outdistanced that of any other state.

Tax in Other States. - It is significant that four states adopted the income tax in 1919, and that others are considering it. One of the four was New York, and interest centers here since it is the state of many and large incomes. More than one third of the personal income taxes collected

1 Report of the Wisconsin State Tax Commission, 1918.

by the Federal government come from this state. The use of a moderate progression is being attempted.1

The attempts to use the income tax in the states are so different, are being tried under such a variety of circumstances, and with such varying degrees of administrative efficiency, that generalizations cannot be made as to its success. The results in such states as Wisconsin and Massachusetts, however, indicate the possibilities of state income taxes when care is exercised in formulating and administering the law. As demands for more revenue present themselves, and as the old system of property taxes becomes more distasteful, a wider use of income taxes as a source of state revenue may be expected.

Additional Reading

Kennan, Income Taxation.

Seligman, The Income Tax.

American Economic Review, vol. iv, pp. 791-815; vol. vi, pp. 837-850.

Proceedings of the National Tax Association, 1920, pp. 274-331.

1 For drafts of " model" laws for taxing personal and business incomes, Bee The Bulletin of the National Tax Association, January, 1921