The herald., 1895-04-11
AN EMAscuLATED LAW

The ultimate court of resort in the Fed
eral judiciary has measured the income
tax law by the constitutional yard stick
and found it lacking. The effect of the
decision is to nullify the two provisions
of the law that seemed most acceptable
to the people at large, if not to those
against whom they were directed. These
were the portions taxing incomes derived
from rents and from state and municipal
bonds. Unquestiunably the classes eN-
empted are the best able TO meet the de-
mands OF the law, and emb ace the people
the promoters of income tax legislation
have had in view all the time. The pro-
visions left alive by this decision will
apply almost wholly to the incomes of
commercial and professional meh, a class
of people whose financial returns are OBJ
tanned with great deal more eXertion
than that expended by the recipients of
rents and bond interest. This is certain
to dampen whatever enthusiasm might
have existed for the law and K these re-
naming provisions are not destroyed
pecemeal by adverse decisions of the su-
preme court in future cases of appeal in
which they may become singly the sub
lects of legal controversy, it is safe to
hazard a prediction OF early repeal. The
only provision of the law that, looked at
from dispassonate point OF view,
seemed both Just and practicable was the
one fixing tax on incomes from rents.
The latter are based on property values
that are really the results of the people S
presence, industry and enterprise. The
landlord himself Is but an infinitestimal
factor in the enhancement OF realty val
ues. So that whatever the people collect
ed from the lax on rental incomes, out
side of the lnconsiderable proportion
that might represent the rent of improve
ments on the real estate would be simply
returning to themselves some of the value
they had created. Such being the case
no injustice would be done anyone. From
a practical standpoint the tax on rental
incomes is the most desirable, because it
is the easiest to collect, Abe subject of tax
alton being impossible of concealment,
and it is bound to be paid by the people
the law intended to reach-that is, it is a
tax that will stay put, except the insig
nticant proportion represented in the in
come from buildings, as before suggested.
The leading political economists from
Adam Smith down agree that a tax on
realty cannot be shifted. The tax on state
and municipal bonds, aside from any
question of its equity-a proposition
much in controversies open to II most
important, if not absolutely insuperable
objection. The United States supreme
court has long since decided that the
power to tax is the power to DESTROY.
A tax on the income from state and M IL
nicipal bonds is virtually tax on the OBJ
legations themselves, and if carried to
sufficient extent would result in the ex-
tinction of the sovereignty or municipali-
ty issuing them. 1t is the exercise of a
power not contemplated by the constitu-
ton. In practice, of course the tax would
not be paid by the bondhoder. Investors
in that kind of securities would have
in consideration, when purchasing, the tax
on their earnings, and only buy on such
terms as would assure the net return de-
sired on the investments. The tax would
be shifted precisely as the California
mortgage tax is at present.
The effect on the federal revenues of
this decision will, of course, be noticeable
and upset some fine calculate ms, but
whether to the extent of crippling the
g,vernment it is yet too early to deter
mine.