sectional feeling itself, however, has been considerably exaggerated. For the chief explanation of the income tax is not so much geographical as economic in its character. It was not so much a movement of the South and West against the North and East as of the agricultural class against the industrial and moneyed class. It is simply an accident that the East is the home of the moneyed interest, while the West and South are the home of the landed interest. If any class antagonisms are discernible, they are primarily economic and only incidentally sectional.

The fifth and final objection that has been used is the old but ever new contention that the income tax, however wise in theory, works badly in practice. That there is considerable But it is usually forgotten

truth in this is not to be denied.

that in dealing with problems of this character the real inquiry is not what is absolutely good, but what is relatively best. So far as the objection is true, it will be found to be due in great part to certain provisions of the law which, as we shall see, might have been avoided. But the objection itself has been made too much of. It is undoubtedly true that the income taxes in the commonwealths are almost entirely farcical. But that is owing solely to the fact that no earnest effort is made to execute the law. Where, however, there is a serious administration, as was the case with the federal income taxes during the Civil War, the result is very different. It is commonly assumed that the Civil War income tax was in many respects a failure and was provocative of great frauds. But after some comparison of the federal income tax with the local property taxes, I venture to say that the federal income tax, notwithstanding all its imperfections, crudities and ensuing frauds, was nevertheless more successful than the general property tax. Let us test this by taking its fortunes in a typical state, utilizing the returns of the state comptroller and the federal officials.

The special income tax of 1865 was levied at the rate of five per cent on all incomes. Its yield in New York State was $8,765,914, which corresponds to an income of $175,318,280.

The state assessment for the general property tax in that year disclosed property to the amount of $1,550,879,685. That is, the self-assessed incomes in New York amounted to over eleven per cent of the property—a preposterously high figure. If we assume that the average rate of profit at that time was seven per cent, the income on New York property should have been $108,561,578. Yet this was not two-thirds of the income actually assessed. The income tax yielded one-third as much again as a corresponding property tax. Of course some allowance should be made for incomes from other sources than property. But the exemption of $600 included almost all the working classes; and the profits from business are practically the income from property invested in the business. So that the only class for which an allowance must be made is that of receivers of professional incomes. The total income of this class is not large enough to make any material difference in the figures given. The great success of the income tax as compared with the local property tax was due in part to the fact of the low valuation of real estate. But its main cause was the failure of the state tax to reach personal property. In other words, the federal income tax was able to reach many of those who contrived to escape the personal property tax.

The other years disclose a similar state of affairs. In 186667 the income tax in New York yielded $18,448,664. It was levied at the rate of five per cent and ten per cent. Taking this as approximately equivalent to a uniform tax of seven and one-half per cent, the result would be a real income of $245,982,187. But let us grant, in order to weaken the contention still further, that it was tantamount to a uniform tax of as much as nine per cent on all incomes. That would mean an income of only 205 millions. The property assessed in New York by the state officials is returned at $1,531,229,636. Even assuming that the rate of income on capital was as high as seven per cent, we would have an income of $107,186,074. Yet the income actually returned exceeded this by nearly 100 millions. Even under the least favorable showing incomes appeared as more than thirteen per cent of property- a figure

manifestly extravagant. The income tax, therefore, produced almost twice as much as the general property tax. And even if we make the same allowance as before for incomes derived from other sources than property, the disproportion would still be very considerable. Even in 1870, when the limit of exemption had been increased so much as materially to reduce the returns, New York paid $10,420,035 as a five per cent income tax. This corresponds to a taxable income of $208,400,700. The assessment of property for the state tax was $1,967,001,185. This would mean that incomes were eleven per cent of property, which for that period is palpably far too high.

In short, the history of the income tax clearly shows that it was more lucrative than a corresponding property tax, and that it succeeded in many cases where the personal property tax failed. The income tax was indeed productive of great frauds, but the personal property tax created far more. It was precisely because the income tax reached so many of the mercantile and capitalistic classes who have both previously and since escaped taxation, that it became unpopular and was abolished.

In other parts of the country, indeed, the results may not be quite so favorable, because of the more primitive economic conditions. Where the value of tangible realty exceeds that of personalty, as in some of the more purely agricultural states, the weakness of the general property tax is less noticeable. And it is possible that in such cases an income tax would yield less than a property tax. But wherever the economic conditions to-day begin to approach those of New York a quarter of a century ago—and there are many such states at the present time-it is probable that the results worked out above will find their counterpart under the present law.

It appears from the above review that most of the objections usually urged against the income tax either entirely lack foundation or are the results of considerable exaggeration. To those acquainted with the history of the English income tax, the objections will seem quite familiar. Very much the same points were made year after year, and often

in almost the same language; but the tax, nevertheless, commended itself to the people as a whole, and it has persisted and developed. So also it is possible that our new tax, especially in the great industrial centers, may succeed far better than the present tax on intangible personalty. Imperfect as it undoubtedly is, the income tax may prove to be a relative good, and to constitute a considerable improvement over the existing system.

VI.

After all has been said, however, it remains true that too much must not be hoped from the practical working of the income tax. A system which rests on a method of selfassessment manifestly opens wide the door to fraud and evasion. The provisions for supplementary revision of the returns in certain cases by official assessments are far from adequate. The methods of checking the returns by utilizing the probate courts and the inventories of property after death, which are customary in Germany and even in democratic Switzerland, would not be possible as yet in America. And although much of the inquisitorial character of the former income tax has been removed by the stringent provisions in the new law calculated to insure the utmost secrecy, there can be very little doubt that the effort to secure correct returns of individual incomes will be far from successful. Above all, there are certain grave defects in the new law, which, in contrast to the more or less imaginary or highly exaggerated objections adverted to above, are deserving of serious consideration.

In the first place, all incomes are treated alike. There is,

technically speaking, no differentiation. It has been gener

ally conceded by economists that a distinction must be made between what are variously known as funded and unfunded incomes, or permanent and precarious incomes, or property and industrial incomes. The income derived from personal exertions is usually attained with a far greater degree of effort than the income derived from property. The property

is indeed the result of labor, but it is the result of past labor, and frequently of some one else's labor. The individual who enjoys the present income of the property is clearly in a different position from the taxpayer who is dependent solely on the temporary result of his own personal labor. His faculty, or ability to pay, is smaller. The tendency of modern income taxation is to charge these precarious or industrial incomes at a lower rate than the permanent incomes from property. Italy, some of the Swiss cantons, New Zealand, and still more recently North Carolina, now pursue this policy, and the movement is spreading in other countries. Our new national tax makes no such distinction.

It may be said in reply that the distinction, although not in express terms, is nevertheless virtually provided for. In the first place, the very existence of the property tax in the United States implies the non-taxation of labor. If all men are taxed alike on their income, and if an additional tax is imposed on property, then the income from property is naturally taxed more severely than income from labor. This was indeed one of the arguments for the recent introduction of the property tax in Prussia and Holland. But the force of the argument is weakened in America by the fact that under existing conditions the greater the property, or at all events the personal property, the less does it pay.

It might furthermore be contended that the $4000 exemption frees labor incomes from taxation. This argument is good as far as it goes. But under modern conditions there are many labor incomes which exceed that figure, such as the incomes of numerous members of the professional classes and of officials of large corporations. The injustice of assessing them at the same rate as the recipients of permanent incomes is not removed by making the $4000 exemption applicable to both. The modern theory as well as the modern practice is to pay attention not only to the income itself but to the source from which the income is derived. The failure of the new law to observe this distinction constitutes an undeniable defect.

The second objection is one to which attention has already